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Decoding the Down Payment: Should You Stick to the 20% Rule?
Explore the financial implications of choosing between a 20% down payment and a smaller amount when buying a home in Snohomish, WA. This comprehensive guide breaks down the pros and cons, offering valuable insights for both first-time homebuyers and seasoned investors in the local real estate market.
The Great Debate: Making a 20% Down Payment on Your House or Not?
Buying a house is one of the most significant decisions you'll ever make. It involves a lot of planning, saving, and a big question that looms large: "How much should my initial down payment be?" Traditionally, a 20% down payment has been the golden standard, but is it the right choice for you? Let's delve into the intricacies of making a 20% down payment versus opting for a smaller amount.
The 20% Down Payment
Historically, putting down 20% of the home's purchase price has been seen as a norm. Let's explore the pros and cons of sticking to this tradition.
Advantages:
Lower Monthly Payments: A substantial down payment reduces your monthly mortgage payments, making your household budget more breathable.
Better Mortgage Rates: Lenders often offer more favorable mortgage rates to buyers who can afford a 20% down payment, potentially saving you thousands over the life of the loan.
Building Equity: A higher down payment means you start off with more equity in your home, providing a financial cushion for the future.
Disadvantages:
Higher Upfront Cost: Accumulating 20% of the home's value can be a steep hill to climb, delaying your home ownership dreams.
Less Liquidity: A hefty down payment can tie up a significant portion of your savings, leaving less room for other investments or emergencies.
Less Than 20% Down Payment
In recent years, many have chosen to put down less than 20%. Let's weigh the benefits and drawbacks of this approach.
Advantages:
Getting into a Home Sooner: A smaller down payment means you can become a homeowner sooner rather than later.
Preserving Cash: By not tying up a large sum in your home, you retain cash for other investments or emergencies.
Disadvantages:
Higher Monthly Payments: A smaller down payment results in higher monthly mortgage payments.
Potential for Higher Interest Rates: Lenders might charge higher interest rates if your down payment is less than 20%.
Private Mortgage Insurance (PMI): With a down payment of less than 20%, you'll likely be required to pay PMI, adding to your monthly expenses.
Case Studies/Examples
To better illustrate the implications of your down payment choice, let's delve into two different scenarios with detailed calculations:
Scenario 1: John opts for a 20% down payment
Home Price: $700,000
Down Payment (20%): $140,000
Loan Amount: $560,000
Interest Rate: 6.0%
Loan Term: 30 years
Monthly Payment: $3,358.35 (excluding property taxes and homeowners insurance)
Total Interest Paid over 30 years: $606,005.60
PMI: NoneAdvantages:
Lower monthly payments, saving on interest over time.
No PMI, which can potentially save hundreds of dollars each month.
Scenario 2: Sarah opts for a 10% down payment
Home Price: $700,000
Down Payment (10%): $70,000
Loan Amount: $630,000
Interest Rate: 6.0%
Loan Term: 30 years
Monthly Payment: $3,778.83 (excluding property taxes and homeowners insurance)
Total Interest Paid over 30 years: $680,176.80
PMI: Approximately $200 per month for the first several years (until 20% equity is reached)Advantages:
Sarah can become a homeowner sooner, with a lower initial down payment.
She retains more of her savings for other investments or emergencies.
Financial Implications Over Time:
Interest Savings: By opting for a 20% down payment, John saves $74,171.20 in interest over the life of the loan compared to Sarah.
PMI Costs: Sarah incurs additional costs due to PMI, which can add up significantly over time until she reaches 20% equity in her home.
Equity Building: John starts with a higher equity in his home, providing a financial cushion and the ability to potentially access this equity through loans or lines of credit in the future.
Both scenarios have their own set of advantages and trade-offs. John enjoys lower monthly payments and saves on interest and PMI costs over time, but he also ties up a larger sum of money upfront. On the other hand, Sarah is able to enter the housing market sooner, albeit with higher monthly payments and additional PMI costs.
Helpful Resources
To aid you in making an informed decision, here are some resources you might find useful:
Mortgage Calculators - to help you crunch the numbers.
Down Payment Articles - for a deeper understanding of down payments.
Choosing the right down payment amount is a highly personal decision influenced by your financial circumstances, market conditions, and long-term goals. Whether you opt for a 20% down payment or a smaller amount, the most important factor is choosing a path that aligns with your financial stability and home ownership dreams.
We'd love to hear from you! Share your thoughts or experiences in the comments section below. If you're grappling with the down payment dilemma, feel free to reach out for personalized advice.
Need a realtor?
See if The Serviss Group can help!
How to Buy Land Like a Pro - A Checklist to Buy Land to Build a House
When researching to purchase land, you’ll want to get all the information you can upfront and during the escrow process. For one, it will help eliminate properties that won’t work for you, and two, it will help reduce unexpected costs or unexpected failed plans.
How To Buy Land Like a Pro
When researching to purchase land, you’ll want to get all the information you can upfront and during the escrow process. For one, it will help eliminate properties that won’t work for you, and two, it will help reduce unexpected costs or unexpected failed plans.
Simple enough, right? Once you start, you soon realize there is a LOT more to buying land than you might think. This guide should give you a good head start on what to learn before you go the land route.
If you have questions or get overwhelmed by the process and need a REALTOR to help guide you through the process, The Serviss Group is here to help.
We have a 13 page document to share with you that outlines in detail all the steps you need to take to make sure a piece of land is right for you.
Get the 13-page “How To Buy Land Like a Pro” guide below
Here’s teaser…
What’s is GIS?
How to find parcel owner names and addresses
How to discover land conditions like mortgages, liens, title issues, unpaid taxes, tax rates, roll-back taxes, foreclosures, deed restrictions, easements, and access.
Have any mineral or air rights been sold or leased?
How to learn more about the topography, impervious services, flood zones + FEMA
Understanding the types of deeds
Why surveys are important and all the different types
The importance of soil testing
Understanding land zoning and density zoning
Minerals, oils, and gas
Water and sewer or is will it be septic and well?
How to understand CC&Rs and where to find them
And I’m not joking… so much more!
Fill out the form below and you get a link to the document. You can download the file by going to file>download. I will also email you a copy.
Need a realtor?
See if The Serviss Group can help!
Everything You Need to Sell Your House - A (FREE) Seminar for Homeowners
Panelist of top industry experts here to answer all your home selling questions. We help you avoid the most common mistakes sellers make!
Everything You Need to Sell Your House - A (FREE) Seminar for Homeowners
Panelist of top industry experts here to answer all your home selling questions. We help you avoid the most common mistakes sellers make!
Come join us for an open Q & A with top industry experts.
This seminar is 100% free. We want to help educate the WA state homeowner so you can avoid the mistakes other sellers make.
Guests that pre-register get a gift card to Arena Sports (where the event is held) to either play some games afterwards, or bring your kids and let them have some fun while you attend the 60 minute seminar.
The panelists will be guided by Managing Broker/Realtor, Nicole Serviss. She leads a Platinum Award Level team in the Snohomish County area and works with buyers, sellers, and investors. Ask questions like:
What to fix to get your home ready to sell?
What are the top mistakes sellers make?
Is it a good time to sell?
What is the market doing right now?
Hear from a financial advisor.
Why invest your money?
How to use your home equity to your advantage?
What is capital gains tax?
What is excise tax?
Ask a title officer questions about taking title to a property.
What is a POA?
How is my home deeded?
How do I find out if I have any judgement liens?
What if I own multiple parcels?
What if there are legal issues that need to be addressed?
We'll have a mortgage broker. Ask about your budget for your move.
What is a pre-approval vs. a pre-qualification?
What is the best way to leverage my net proceeds towards the down payment on the next home in a higher rate environment?
What is a Seller Buydown strategy?
Is it better to offer a seller credit or price reduction?
About the venue:
Arena Sports Mill Creek has indoor activities for everyone — Ropes Course, Climbing Walls, Classic Bowling, Arcade & Virtual Reality Games, Laser Tag, Mini Bowling, Inflatable FunZone and a restaurant!
Light food provided.
Need a realtor?
See if The Serviss Group can help!
Moving to Snohomish? Don't Go Tour a House Until You Do These 3 Things
Moving to Snohomish? Don't Go Tour a House Until You Do These 3 Things
Moving to Snohomish? Don't Go Tour a House Until You Do These 3 Things
I've got a list for you guys that I will make the actual home shopping process go much faster.
You don’t want to waste your time (that you could be spending doing much more fun things) on houses that are big NOs!
Look up the house on Google Maps
Start with the satellite view and get a feel for the neighborhood and what’s around you. Sometimes when you're just looking at just the street address you don't realize that behind the the property is a maybe a construction company, or a landscaping company, or school. You can find positive things by looking at the satellite view and also maybe some negative things.
I also want you to try to look at the street view if it's available. Sometimes in more rural areas the street view isn’t available, but if you see that little glowing blue line, drag that little street-view guy there take a look around before you spend the time to get in your car and spend money on gas.
Read the Seller’s Disclosure
The seller disclosure is the seller telling you, to the best of their knowledge, what's wrong with their house along with some of its history. If there is a clear history of maybe flooding in the basement or roof is leaking and maybe that's not within your budget, well don't spend your time driving out to this house to go see it inside if you already know you're taking it off your list.
Take the time to read the seller's disclosure. The public does not have access to this form, so reach out to your real estate agent (if you don't have one, give me a call) and we'll get you a copy of that so you can preview it.
Look at the 3D Tour
If there's a virtual tour recorded of the house, absolutely look through it. If there’s a video, look at that too, but the 3D virtual tours are easier to control and give you a better idea of placement of rooms. Some of them you can actually measure room distances, so if it's really important to you to be able to fit a king-size bed in the master bedroom, you can measure that out and see how big the space is.
It's hard on pictures to see where each room is located and where that mystery door leads to. Is that door leading to a closet? Is that another bedroom? Is that the garage? That virtual tour will give you the lay of the land.
Do a Drive By
Sometimes you pull up to the curb and before you even walk in the front door you look around realize this is not the house for you. Maybe it doesn't really fit what you're needing for your family. If that's something that could have been eliminated before you take time off work and meet your real estate agent down at the house, go do a drive-by to get a feel for what's around there.
If it's really important to you to have walkability and you pull up and you realize this neighborhood has no sidewalks, well then don't waste your time looking at that house.
Your time is valuable. You don't want to spend it on on properties that would already be a no if you did these first steps.
I hope this was helpful, and it makes your house hunting process a little bit easier.
Need a realtor?
See if The Serviss Group can help!
Should I Pay For a Home Inspection?
One of the biggest fears when purchasing a home, spending hundreds of thousands of dollars on something, is that there might be something wrong with it.
Home Inspections and Why It’s Worth The Money
One of the biggest fears when purchasing a home is that there might be something wrong with it.
The bad news is, there’s always at least one thing wrong with every house. The good news is, that everything is fixable. It’s so important to know what’s wrong with the home you want to buy so you can make an informed decision how you want to continue.
What is a home inspection?
When you purchase a home, you have the option to include a home inspection as part of your contract. A professional inspector comes to the home with you and your agent, and inspects all major components of the home you’re trying to buy.
What does it cost?
It depends on the size and age of the home, but plan on it costing you around $300-500.
What do they inspect?
They inspect the site, grounds, exterior, roof, structure, garage, interior, plumbing, electrical, heating and air conditioning, insulation and ventilation, fireplace and stove, and built-in kitchen appliances.
What this tells you?
You’ll get a very large report after the inspection with photos and descriptions of issues in the home. Every house has things wrong with it, so don’t be alarmed.
When you read your report, you’ll decide what items, if any, you want to ask the seller to fix for you. This opens up negotiations again.
What are your options?
You can decide not to buy the house anymore and get your earnest money back.
You ask the seller to fix a list of items.
You don’t ask for anything to be fixed and the “contingency is satisfied.”
What happens next?
The seller has a few responses they can choose from when you ask them to fix things on the house.
They can say, “Yes!”
They can say, “No,” and the contract ends and you get your earnest money back.
They can say, “No, but how about we do this instead?” You can then decide if you like this new plan or not.
Why It’s Important
Most home inspectors focus on the major defects that will cost the buyer a lot of money above the purchase price to repair. Cosmetic items are rarely reported. By bringing these major defects to the buyers attention, the buyer can choose to negotiate with the seller with the intent on getting the major components repaired or a reduction in the selling price.
If the seller can not afford to have the repairs corrected, you can still choose to buy the house with the full knowledge of what repairs are needed and the cost of the repairs will be your responsibility. Or, you may decide the cost of repairs is too much, then you can walk away from the deal and still get your earnest money back provided your contract has a "sale contingent on inspection" clause.
You might also be interested in…
Why Marketing a Home Matters
When you list your home for sale, you need an agent with an extensive digital marketing plan.
In 1981, 22% of home buyers read newspaper ads to find a home.
In 2018, 44% looked for properties online first.
-According to Realtor.com
When you list your home for sale, you need an agent with an extensive digital marketing plan.
When you list your home through RE/MAX, no matter how the search is started, you can expect your property to be found on more Real Estate, Agent, & 3rd Party websites than any other real estate company.
Why? Because of our enhanced listing capabilities.
With the use of Google Ads, Google Search Console, Site-mapping, Google Analytics, & SEO Keywords, I can increase your property's web presence and searchability.
Receive a FREE copy of my 21 point marketing plan.
Discover my strategies to make your home shine above the competition.
If you’d like to learn more about how Nicole can help you sell your home, please contact her here.
Are you contemplating selling your home in the Evergreen State but feeling uncertain about the financial implications? Navigating the true costs of selling your house in Washington can be more complex than you think. Let's demystify the process and delve into both the known and the often-unanticipated expenses that come with selling a property.