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Most
homes are purchased with cash plus a mortgage loan. The cash is
mainly for a down payment but a small amount is needed for closing
costs. The mortgage loan covers the
difference between the purchase price and the cash down payment. |
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The following is a simple example of our calculators |
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Hundreds of books promote the concept of buying real estate with "no money
down" or zero down payment.
| Don't
even think about it ! |
| No
money down is for hotshot investors who have tons of free
time and don't care about location. |
| The
home you want will most likely require a significant cash
down payment. |
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Mortgage lenders know that if you put your
entire life savings of $20,000 into a $100,000 house...
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-- you are not likely
to take off to the South Pacific and leave them with the house and your
$20,000.
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| The lowest
interest rates and lowest fees are reserved for buyers who can come up
with a 20% cash down payment. |
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Homes can be
bought with as little as 5% cash down payment, but mortgage lenders
worry...
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-- if you put up only $5,000 while they put up $95,000 for that
$100,000 house,
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-- you might flee the state or go home to Momma at the first hint of financial
problems.
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| Expect
to pay higher interest rates and higher fees for mortgage loans
when your cash down payment is less than 10% of the purchase
price . |
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low down payment also means higher monthly
payments which can stress your ability to pay other bills. |
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How
do you assemble $40,000 in cash for a 20% down payment on your
$200,000 dream house ?
| Sell
your current home and recover at least $40,000 in equity. |
What if this is your
first house?
- Save the bulk of your
big salary - put it in a money market fund.
- Borrow from parents or
grandparents.
- Get a partner:
Spouse or friend with income and cash.
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Remember: most
people own several homes in a lifetime. The "dream
home" is often the third or forth home.
- Buy something smaller
than your dream house.
- If the dream house has
five bedrooms and a library, start with 3 bedrooms
and make one into a library.
- Pay down the mortgage
loan and build equity for a bigger down payment on
the next house.
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Danger:
There is no shortage of brokers and lenders willing to convince you that
you can afford that dream house now. Beware of:
- Adjustable rate mortgages that
starts with low monthly payments that can quickly grow
beyond your means.
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The
biggest mistake is to buy a home at the limits of your finances
Most of us need to
focus on mortgage amounts less than the maximum a
mortgage lender will lend. Unless confident that your
income will be increasing sharply, don't accept a mortgage more
than 80% of the maximum that mortgage lenders will
give.
If lenders are willing to loan $160,000, plan on a
$130,000 mortgage (about 80% of the $160,000) and a
house costing no more than $155,000.
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Top
of page |
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Copyright January 1, 2003
Audrie.com Corporation
PO Box 870454
Stone Mtn, GA 30087
All rights reserved
Fax: 770-469-2180
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