Rochester Real Estate | LOCAL Homes For Sale https://www.rochesterrealestateblog.com Rochester Real Estate | LOCAL Homes For Sale | Homes for sale in Rochester, NY, LOCAL Rochester real estate listings, market data, REALTOR® info, and high quality content updated every 15 minutes! Wed, 25 Jun 2025 11:50:30 +0000 hourly 1 https://wordpress.org/?v=6.7.2 https://www.rochesterrealestateblog.com/wp-content/uploads/2016/11/cropped-SITE-LOGO-512-x-512-1-32x32.png PROs And CONs Of Buying A Home With A Small Down Payment – Rochester Real Estate | LOCAL Homes For Sale https://www.rochesterrealestateblog.com 32 32 June Home Maintenance Checklist: 40+ Must-Do Tasks to Prepare Your Home for Summer https://www.rochesterrealestateblog.com/june-home-maintenance-checklist-summer-prep/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=20501 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> May Home Maintenance Checklist: 30 Essential Tasks to Prepare Your Home for Summer https://www.rochesterrealestateblog.com/may-home-maintenance-checklist/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=20484 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> April Home Maintenance Checklist: How To Prepare Your Rochester NY Home For Spring https://www.rochesterrealestateblog.com/april-home-maintenance-checklist/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=20364 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> March Home Maintenance Checklist: Get Your New York Home Ready for Spring https://www.rochesterrealestateblog.com/march-home-maintenance-checklist/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=20338 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How to Buy a House in New York https://www.rochesterrealestateblog.com/buy-a-house-in-new-york/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19906 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How to Sell a House in New York https://www.rochesterrealestateblog.com/sell-a-house-in-new-york/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19905 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Risks of Buying a Non-Warrantable Condo In New York: What You Need to Know https://www.rochesterrealestateblog.com/non-warrantable-condo/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19796 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Builders Should Know About Spec Construction Loans In New York https://www.rochesterrealestateblog.com/builders-spec-construction-loans/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19795 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Moving To The Finger Lakes Region Of New York | Guide To Relocating To The Finger Lakes https://www.rochesterrealestateblog.com/moving-to-the-finger-lakes-region/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19875 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Navigating the Numbers: The Pros and Cons of Using Online Home Value Estimators For New York Real Estate https://www.rochesterrealestateblog.com/pros-cons-online-home-value-estimators/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19794 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The Role of Location in Home Valuation In New York https://www.rochesterrealestateblog.com/role-of-location-home-valuation/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19768 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Lowe’s vs U-Haul: A Review of Truck Rental Companies https://www.rochesterrealestateblog.com/lowes-vs-uhaul/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19758 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Understanding the Importance of a Seller’s Property Condition Disclosure https://www.rochesterrealestateblog.com/property-condition-disclosure-statement/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19632 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What are Delayed Showings and Negotiations in Real Estate In New York? https://www.rochesterrealestateblog.com/delayed-showings-negotiations/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19547 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 8 Viable Tactics to Selling Your Home and Moving Out of State https://www.rochesterrealestateblog.com/selling-home-moving-out-of-state/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19542 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Unconventional Methods for Selling a House: Thinking Outside the Box https://www.rochesterrealestateblog.com/unconventional-methods-for-selling-a-house/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19519 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Should I Sell My House Off Market: Pros and Cons Explained https://www.rochesterrealestateblog.com/sell-house-off-market/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19503 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What is PITI and How Does It Affect Your Mortgage https://www.rochesterrealestateblog.com/what-is-piti/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19498 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How To Set A Home Renovation Budget https://www.rochesterrealestateblog.com/home-renovation-budget/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19490 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How Does A Co-Borrowers Credit Scores Affect A Home Purchase? https://www.rochesterrealestateblog.com/co-borrower-credit-score/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19474 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> New Construction Final Walk-Through Checklist: Ensuring a Seamless Home Inspection https://www.rochesterrealestateblog.com/new-construction-final-walk-through/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19458 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Essential Tips for Pumping a Septic Tank: What You Need to Know https://www.rochesterrealestateblog.com/pumping-a-septic-tank/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19450 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Can You Submit Multiple Offers On Homes At Once – A Legal And Ethical Analysis https://www.rochesterrealestateblog.com/multiple-offers-on-homes-at-once/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19414 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How to Get Your Home Photo Ready for Real Estate Listings https://www.rochesterrealestateblog.com/real-estate-photo-ready/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19409 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Does a Home Builder’s Warranty Cover? https://www.rochesterrealestateblog.com/home-builders-warranty/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19394 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> July 2023 Greater Rochester NY Area Real Estate Market Update https://www.rochesterrealestateblog.com/july-2023-rochester-ny-real-estate-market-update/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19403 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Who Pays Real Estate Commission When You Buy or Sell a Home https://www.rochesterrealestateblog.com/real-estate-commission/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19366 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Quitclaim Deeds: What You Need to Know https://www.rochesterrealestateblog.com/quitclaim-deeds/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19358 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What to Know About Selling a Home As Is for Cash https://www.rochesterrealestateblog.com/selling-home-as-is-cash/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19347 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How to Know if My House Has Paranormal Activity https://www.rochesterrealestateblog.com/is-my-house-haunted/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19342 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Why Find The History of a House https://www.rochesterrealestateblog.com/find-history-house/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19316 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> June 2023 Greater Rochester NY Area Real Estate Market Update https://www.rochesterrealestateblog.com/june-2023-rochester-ny-area-real-estate-market-update/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19313 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Does a Real Estate Lawyer Do? https://www.rochesterrealestateblog.com/real-estate-lawyer/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19181 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> May 2023 Greater Rochester NY Area Real Estate Market Update https://www.rochesterrealestateblog.com/may-2023-rochester-ny-area-real-estate-market-update/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19162 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What to Know About Buying a Home For The First Time https://www.rochesterrealestateblog.com/buying-home-first-time/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=19058 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> <strong>What Should a Buyer Look For at a Home Inspection?</strong> https://www.rochesterrealestateblog.com/what-look-for-home-inspection/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18983 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Companies That Buy Houses For Cash Reviewed https://www.rochesterrealestateblog.com/companies-buy-houses-for-cash/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18889 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Does Home Staging Work and What is The Cost? https://www.rochesterrealestateblog.com/does-home-staging-work/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18814 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What to Avoid When Getting a Mortgage https://www.rochesterrealestateblog.com/avoid-when-getting-mortgage/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18797 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> <strong>5 Options For Replacing a Roof Reviewed</strong> https://www.rochesterrealestateblog.com/replacing-roof/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18771 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Are Restrictive Covenants in Real Estate? https://www.rochesterrealestateblog.com/restrictive-covenants/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18714 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Can The Court Force The Sale of Your House in Divorce? https://www.rochesterrealestateblog.com/court-force-sale-divorce/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18693 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Real Estate Agent vs. Broker: What&#8217;s The Difference? https://www.rochesterrealestateblog.com/real-estate-agent-vs-broker/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18650 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How To Determine Square Feet In Your House For More Accurate Property Estimates https://www.rochesterrealestateblog.com/determine-square-feet/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18167 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 3 Things That Often Results in a Real Estate Agent Getting Sued https://www.rochesterrealestateblog.com/real-estate-agent-sued/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18133 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The Top 5 Types Of Home Inspections Buyers Should Consider https://www.rochesterrealestateblog.com/5-types-home-inspections/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18119 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The Pros And Cons Of Rent To Own Homes: What You Need To Know https://www.rochesterrealestateblog.com/pros-cons-rent-own-homes/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18104 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 5 Smart Things To Do Before Moving That Will Help Ease Your Transition https://www.rochesterrealestateblog.com/things-before-moving/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18084 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How to Become a Real Estate Agent https://www.rochesterrealestateblog.com/become-real-estate-agent/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=18071 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Renting A House Or An Apartment: Which Is The Better Option https://www.rochesterrealestateblog.com/renting-house-apartment/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=17871 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The 5 Most Important Factors To Consider When Buying A House https://www.rochesterrealestateblog.com/5-factors-buying-house/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=17851 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Buyers And Sellers Need To Know About An Appraisal Gap https://www.rochesterrealestateblog.com/appraisal-gap/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=17827 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Pros And Cons Of Renting With Roommates – What You Need To Know https://www.rochesterrealestateblog.com/renting-with-roommates/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=17794 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 6 Things You Should Know About Buying Land https://www.rochesterrealestateblog.com/things-know-buying-land/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=17773 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How Long Should Home Sellers Wait To Respond To An Offer On Their Home? https://www.rochesterrealestateblog.com/home-sellers-wait-respond-offer/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=17745 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How To Buy A House With A Low Credit Score https://www.rochesterrealestateblog.com/how-to-buy-a-house-with-a-low-credit-score/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=16819 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Things To Consider When Shipping A Car https://www.rochesterrealestateblog.com/things-to-consider-when-shipping-a-car/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=16248 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Home Depot Truck Rentals: What to Know Including Pricing https://www.rochesterrealestateblog.com/home-depot-truck-rentals-what-to-know-including-pricing/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=16156 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 16 Things To Do Before Listing Your Home For Sale https://www.rochesterrealestateblog.com/16-things-to-do-before-listing-your-home-for-sale/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=16138 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The Biggest Home Inspection Mistakes to Avoid https://www.rochesterrealestateblog.com/biggest-home-inspection-mistakes-to-avoid/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=16112 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How Your Credit Score Impacts Your Ability To Buy A House https://www.rochesterrealestateblog.com/how-credit-score-impacts-buying-house/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=16086 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Top Winter Home Selling Mistakes | 7 Errors Made While Selling A House During The Winter https://www.rochesterrealestateblog.com/top-winter-home-selling-mistakes/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=16051 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Top Winter Home Buying Mistakes | 11 Errors Made While Buying A House During The Winter https://www.rochesterrealestateblog.com/winter-home-buying-mistakes/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=16013 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Address Change Form Should I Use At The Post Office? https://www.rochesterrealestateblog.com/address-change-form-post-office/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15981 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Does Contingent Status Mean in Real Estate? https://www.rochesterrealestateblog.com/what-does-contingent-status-mean-real-estate/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15956 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> DIY Renovation Ideas For Your Backyard https://www.rochesterrealestateblog.com/diy-renovation-ideas-backyard/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15937 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How to Rent Your First Apartment Guide https://www.rochesterrealestateblog.com/how-to-rent-an-apartment/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15931 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Tips For Selling A Home Virtually https://www.rochesterrealestateblog.com/tips-selling-a-home-virtually/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15907 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The Complete Winter Storage Checklist For Your Belongings https://www.rochesterrealestateblog.com/winter-storage-checklist/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15885 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Should I Waive My Home Inspection When Buying A House? https://www.rochesterrealestateblog.com/should-i-waive-my-home-inspection/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15870 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The Biggest Self Storage Companies Reviewed https://www.rochesterrealestateblog.com/biggest-self-storage-companies/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15836 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Earnest Money and House Deposits Explained https://www.rochesterrealestateblog.com/earnest-money-house-deposits-explained/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15760 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Moving Mistakes To Avoid https://www.rochesterrealestateblog.com/moving-mistakes-to-avoid/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15568 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Top Mortgage Myths | Demystifying Common Home Loan Misconceptions https://www.rochesterrealestateblog.com/top-mortgage-myths/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=15102 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> First-Time Home Buyer Mistakes to Avoid https://www.rochesterrealestateblog.com/first-time-home-buyer-mistakes/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=14815 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 10 Tips For Adding Appeal To Your Home This Summer https://www.rochesterrealestateblog.com/10-tips-adding-appeal-to-home-this-summer/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=14237 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Exploring The Merits of Smart Home Technology When Selling a Home https://www.rochesterrealestateblog.com/smart-home-technology-selling-a-home/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=13782 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Top Frequently Asked Questions From Home Sellers https://www.rochesterrealestateblog.com/top-frequently-asked-questions-home-sellers/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=2424 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> First Time Home Buyer Programs In Rochester NY &#8211; Updated January 2025 https://www.rochesterrealestateblog.com/first-time-home-buyer-programs/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock http://rochesterrealestateblog.com/?p=580 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How New Doors &#038; Windows Can Boost Your Home Value https://www.rochesterrealestateblog.com/how-new-doors-windows-boost-your-home-value/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=13643 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Top 5 Things To Know When Flipping Your First House https://www.rochesterrealestateblog.com/5-things-to-know-when-flipping-your-first-house/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=13574 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Are The Best Mortgage Options for Self Employed Borrowers? https://www.rochesterrealestateblog.com/mortgage-options-for-self-employed-borrowers/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=13450 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Top 10 Best Places To See Christmas Lights In Rochester NY https://www.rochesterrealestateblog.com/top-10-best-places-see-christmas-lights-rochester-ny/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=10236 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Are The PROs And CONs Of Multifamily Homes? https://www.rochesterrealestateblog.com/what-are-the-pros-and-cons-of-multifamily-homes/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=13219 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> What Low-Cost Home Improvements Should You Make Before Selling Your Home? https://www.rochesterrealestateblog.com/low-cost-home-improvements-you-should-make-before-selling-your-home/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=13114 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 15 Things Millennial Home Buyers Look At While Buying A House https://www.rochesterrealestateblog.com/15-things-millennial-home-buyers-look-at-while-buying-a-house/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=13028 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How Does A Fence Increase The Value Of Your Home https://www.rochesterrealestateblog.com/how-does-a-fence-increase-the-value-of-your-home/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12995 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 5 Simple &#038; Low Cost Fixes To Make Your Home More Appealing To Buyers https://www.rochesterrealestateblog.com/5-simple-and-low-cost-fixes-to-make-your-home-more-appealing-to-buyers/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12779 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How To Improve A Homes Curb Appeal In Rochester NY https://www.rochesterrealestateblog.com/how-to-improve-a-homes-curb-appeal-rochester-ny/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12665 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 7 Ways to Create an Energy-Efficient Home While Conserving Your Budget https://www.rochesterrealestateblog.com/7-ways-create-an-energy-efficient-home/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12633 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Hiring Movers Vs. Moving Yourself | The PROs &#038; CONs Of Each https://www.rochesterrealestateblog.com/hiring-movers-vs-moving-yourself/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12592 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Should You Pay Off Student Loans Before Purchasing a Home? https://www.rochesterrealestateblog.com/pay-off-student-loans-before-purchasing-a-home/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12531 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Should I Build A New Home Or Buy An Existing Home? https://www.rochesterrealestateblog.com/should-i-build-a-new-home-or-buy-an-existing-home/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=2497 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> Buying A Condo Vs. Renting A Condo | What Are The PROs &#038; CONs? https://www.rochesterrealestateblog.com/buying-a-condo-vs-renting-a-condo/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12402 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 9 Money Saving Moving Tips | How To Cut Costs When Moving https://www.rochesterrealestateblog.com/9-money-saving-moving-tips/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12341 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> How to Create a Proper Home Maintenance Checklist https://www.rochesterrealestateblog.com/how-to-create-a-proper-home-maintenance-checklist/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12300 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> 5 Tips For Tenant Screening | How To Weed Out Bad Tenant Applicants https://www.rochesterrealestateblog.com/tips-for-tenant-screening/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12291 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The Best Social Media Blogs For Real Estate From 2017 https://www.rochesterrealestateblog.com/best-social-media-blogs-2017/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12045 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The Best Home Improvement Blogs From 2017 | Advice For Home Remodeling https://www.rochesterrealestateblog.com/best-home-improvement-blogs-2017/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12044 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
Subscribe To Our Blog (it's FREE) & You'll Receive All The Top Real Estate Tips, Trends, News, and More in your e-mail inbox!:Delivered by FeedBurner
About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]> The Best Mortgage Blogs From 2017 | Advice For Home Financing https://www.rochesterrealestateblog.com/best-mortgage-blogs-2017/ Tue, 08 Nov 2016 12:30:11 +0000 Kyle Hiscock https://www.rochesterrealestateblog.com/?p=12043 Reasons Why Buying A Home With A Small Down Payment Can Be Good & Bad [caption id="attachment_10082" align="aligncenter" width="450"]PROs & CONs Of Buying A Home With A Small Down Payment PROs & CONs Of Buying A Home With A Small Down Payment[/caption] One of the most frequently asked questions about mortgages relates to down payments.  Just to give you an idea, some of the most common questions regarding down payments include;
  1. How much of a down payment will I need?
  2. What is a down payment?
  3. Are there programs available that allow a small down payment?
  Buying a home with a small down payment can be done.  There are actually many home buying programs that allow a buyer to purchase a home with little or no money.  It's extremely important to understand what buying a home with a small down payment may mean before deciding to go that route. Below are some of the PROs and CONs to buying a home with a small down payment.  If you're contemplating the purchase of a home and are on the fence about whether to utilize a program that allows small down payments, make sure you realize what the potential benefits and drawbacks are.

What Is A Down Payment?

A down payment is a percentage of money that is required up front to purchase a home. A down payment is one of the most well known costs involved with buying a home. The down payment will vary depending on the type of mortgage financing a buyer elects to use.  As you're preparing to buy a home, it's important that you understand what a down payment is but also learn about some of the best tips for saving for a down payment. Buyers who understand what a down payment is and know how to save for it generally don't experience sticker shock when buying a home.

PROs Of Buying A Home With A Small Down Payment

Before deciding to take advantage of a mortgage product that allows a small down payment, you need to understand what the benefits of buying a home with a small down payment are.  Read on to find out the PROs of buying a home with a small down payment.

Allows Buyers To Purchase A Home

One of the major reasons why lenders allow buyers to purchase a home with a small down payment, or even a zero down payment, aside from the lender getting the mortgage and the subsequent money they'll make on it, is because some buyers don't have boatloads of money saved.  There are many potential buyers out there who have excellent credit and a great job history, but don't have a ton of money saved up for a substantial down payment. One of the biggest benefits to buying a home with a small down payment is it allows more buyers to buy a home, which in turn, allows more sellers to sell their home.  Depending on the type of mortgage a buyer is obtaining, it's also possible in addition to need little to no money down that a buyer may also receive seller concessions.  Seller concessions in real estate allow a buyer to receive money from a seller to be used towards their down payment and closing expenses. Without these small down payment programs, there would be significantly less buyers who are able to buy a home.

Doesn't Drain A Buyers Savings Account

[caption id="attachment_10083" align="aligncenter" width="450"]Small Down Payment Mortgages Don't Deplete The Piggy Bank Small Down Payment Mortgages Don't Deplete The Piggy Bank[/caption] Another great benefit to buying a home with a small down payment is it allows buyers to not drain their savings account.  One of the most important tips for first time home buyers that cannot be discussed enough is that there are costs associated with not only buying a home, but also owning a home. Small down payment mortgage programs give buyers the ability to have money left after paying their down payment and closing expenses, should there be an emergency or a repair that is needed in the home. For example, if you're buying a home with a small down payment and you need to replace the furnace after closing unexpectedly, having money left in your savings account is huge.  This is only one example of a home repair that can arise while owning a home, but there are many others.

CONs Of Buying A Home With A Small Down Payment

It's human nature to not want to spend our hard earned dollars, but electing to buying a home with a small down payment may not be the best fit for your situation.  It's vital that before you decide to utilize a program that allows zero or little down, you understand what the potential drawbacks are.  Read on to find out the CONs of buying a home with a small down payment.

Lack Of Immediate Equity

Owning a home is considered a solid investment opportunity due to the ability to build equity.  Equity is defined as the difference between the current fair market value of a home and the amount a homeowner owes on a mortgage. If you're contemplating a zero down or small down payment mortgage program, you need to be aware that this may lead to a lack of immediate equity in your home.  Lack of immediate equity is a drawback of buying a home with a small down payment.  The larger a down payment, the greater the amount of instant equity and vice versa. While it's impossible to predict the future, if you're planning on buying a home with a small down payment, you should be planning on staying in the home for more than 5 years.  The reason staying in a home for at least 5 years when buying with a small down payment is because if you decide to sell beforehand, you may not have enough equity to cover the expenses to sell a home, unless you're in a market that is seeing values appreciate quickly. If you sell before you have enough equity in your home, you may potentially need to perform a short sale, which can be a very long, stressful, and unsuccessful process.

Mortgage Insurance

Buyers who are utilizing a small down payment mortgage product will be required to pay mortgage insurance monthly.  Mortgage insurance is a specific amount of money that is paid each month or upfront by a borrower to a lender as a safeguard should the borrower default on their loan. The added expense of mortgage insurance is one negative of buying a home with a small down payment.  If you're unable to produce a large enough down payment to eliminate mortgage insurance from the beginning of the term, it's critical you know if, how, and when you can remove mortgage insurance.

Higher Interest Rates

[caption id="attachment_10084" align="aligncenter" width="450"]Small Down Payments Can Result In Higher Mortgage Rates! Small Down Payments Can Result In Higher Mortgage Rates![/caption] Interest rates are very important regardless of what you're going to be purchasing.  Mortgage interest rates are arguably the most important however.  The reason why mortgage interest rates are so important is due to the amount of money that is being borrowed. One of the CONs to buying a home with a small down payment is the potential of higher interest rates.  The reason interest rates for a buyer who is putting zero or little money down can be higher is due to the amount of risk the lender is taking on. For example, it's extremely likely that a buyer who is obtaining a minimum down FHA mortgage will have a higher rate than a buyer who is obtaining a 50% down conventional mortgage. There are dozens of reasons to get pre-approved for a mortgage which is important before shopping for homes.  Learning about the correlation of interest rates and down payment amounts is just one of the major reasons.

Higher Monthly Mortgage Payment

Buyers who utilize small down payment mortgage programs will face higher monthly mortgage payments than buyers who are able to put down more money.  The higher monthly mortgage payment is another drawback to consider when buying a home with little to no down payment. If you're unsure why a smaller down payment results in a higher monthly payment, below is an example to illustrate how the down payment amount impacts payment.  The example below is using a subject property that sold for $200,000, annual real estate taxes of $8,000, hazard insurance of $6.00 per thousand financed, and a mortgage interest rate of 4.0%.  The two scenarios are both conventional mortgages.  The only difference between the two scenarios is the down payment amount and that scenario 2 does not include mortgage insurance due to the down payment amount.
  • Scenario 1 - 5% down payment - Monthly PITI (Principal, interest, taxes, and insurance) = $1,754.26
  • Scenario 2 - 20% down payment - Monthly PITI (Principal, interest, and taxes) = $1,510.53
  As you can see, the payment for scenario 2 is almost $250.00 less per month.  Over the course of a 30 year mortgage, this is a substantial amount of money saved.

Weakens Negotiating Power & Loss Of Competitive Edge

If you're going to be buying a home in a sellers market, you need to understand that utilizing a small down payment mortgage weakens your negotiating power and can result in losing your competitive edge.  Weaker negotiating power and the loss of the competitive edge is another potential pitfall of buying a home with a small down payment. In a sellers market there are more ready, willing, and able buyers who will be competing for a home.  It's highly likely that these competing buyers will have the ability to put more money down.  A larger down payment from a buyer is better in the eyes of most sellers. This means if you're going to be taking advantage of a first time home buyer program or another type of product that allows a small down payment, you need to be aware that you may lose out on a home or two.

Final Thoughts

The amount of your down payment plays a huge role in the mortgage and home buying process.  There are many reasons why small down payment programs exist, but they aren't the best fit for everyone. It's critical that as you're trying to figure out what type of mortgage is best for you, you understand the PROs and CONs to buying a home with a small down payment if you're considering one of these mortgage products.  The above PROs and CONs should help you make an educated decision. If you're still unsure, it's highly suggested that you discuss all of your options with an experienced local mortgage professional or real estate professional.

Other Top Mortgage Resources

Are you thinking about buying a home in Rochester NY with a small down payment?  If so, it's important that you evaluate the PROs and CONs to buying a home with a small down payment.  If you don't have a top Rochester NY real estate agent yet, contact me, and I'd love to discuss your individual situation in detail!
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About the authors: The above article "PROs And CONs Of Buying A Home With A Small Down Payment" was provided by the Keith Hiscock Sold Team (Keith & Kyle Hiscock). With over 30 years combined experience, if you’re thinking of selling or buying, we’d love to share our knowledge and expertise. We service the following Greater Rochester NY areas: Irondequoit, Webster, Penfield, Pittsford, Fairport, Brighton, Greece, Gates, Hilton, Brockport, Mendon, Henrietta, Perinton, Churchville, Scottsville, East Rochester, Rush, Honeoye Falls, Chili, and Victor NY.]]>