Should I Save for a Full Down Payment? The Real Estate Revolution Podcast Episode 17

Hey, on this episode, the question is, should I or should I not save the full 20% down to put down on a house and maybe how to speed that process up? So let's dump it. Should I wait to save 20% to put down on the house, or should I just figure out how to put down what little bit I have or borrow from a family member to get that process started? These are a lot of questions. And I know a lot of people that, you know, take the Dave Ramsey approach to, you know, hey, I'm going to save 20% to put down in a house, so I don't pay mortgage insurance. And then I'm going to wait it out and I'm going to live on rice and beans. And the reality is with real estate, everything has to do with time, right? So some of you might have waited 10 years to save up $25,000 to put down in the house. Well, what have the prices in housing done in 10 years that it took you to save that? That if you had bought 10 years ago with a minimum down, would you have made that up over time? And the answer is yes. You know, I think a lot of people are fixated on, hey, I want to put 20% down, so I don't pay mortgage insurance. And mortgage insurance is based on your credit and some other things. And it's, you know, you know, a couple hundred bucks a month depending on the loan type. But if over a couple of years you create that equity or like during pandemic and the equity shot up, well, you just got the down payment in an equity rise, which means you can go and refinance and get rid of the mortgage insurance because you have equity. So just as a tip right now as well, if you did buy a house in the last five years and you haven't refinanced it, which I don't recommend you refinance it because you probably have a really good rate. But maybe you put 3 or 5 or 10% down, call the mortgage company and start to go through where they do a basically inside refinance, where they're just looking at pulling the mortgage insurance off. And you can do that. You can call them, they can do an appraisal. Sometimes they can do it based on algorithms and the computer. But you definitely want to call because if you did put minimum down and the equity is increased, you can get rid of that hundred, two hundred dollars a month in mortgage insurance doing that strategy by calling the banks and doing that. So that is one thing to check on, because sometimes we buy a house a couple years ago and we forget that there's still mortgage insurance on it. And we've created the equity in the property that we can now get rid of that. So don't let that go away because you can pay that for a really long time and nobody's going to mention it to you. And you don't have to refinance out of your really good rate to get rid of mortgage insurance. Now that does apply in some areas like fha. You do have to go through a refinance to get rid of that or you have to own it. I think it's for five years. If you have questions about this, either one of our power partners sponsors, Andrew Caram or Kelly Zitlow, they're both true to our company here. They can walk you through what that looks like as well. Now let's kind of go back to that saving money and let's talk about what that actually does besides pull your payment down a little bit. Well, what if you put less money down and you saved half of what your down payment was so that you're not house poor and you have this reserve? I'd rather have a little bit higher payment knowing that I have this reserve. And that's some of the conversations. Anytime you get to the point of putting 20 or 30% down, you're kind of like, well, do I want to have 10% in the bank that I can draw from emergencies or do I want to reduce my payment by X amount? Now, reducing the payment may be required based on your qualifying, but I recently had a client where, you know, Marie and I talked about, she's like, well, I think I'm going to put 100 or I'm going to put 30% down. And I showed her the difference in the numbers, which was right. Now here's a rule of thumb for you, by the way, for every thousand dollars you borrow, it's the interest rate as the dollar. So if the interest rates are 7%, that's $7 per thousand dollars you borrow for a mortgage payment. So now you look at the investment side and go, okay, for every $10,000 I put down, I'm saving $70 a month. Now $50,000, right? You start getting up there and you're like, okay, so I'm saving $500 a month. But the question is, does that money give you some safety and security? It may not be giving you a return on money or can that extra money that you are going to put down, it's going to save you a little bit per month. Can it be moved into something else that is working for you, whether it's a money market, a whole life insurance policy. Any of those things could be important to you. It's really looking at the financial literacy and going, okay, what does this money look like? What's the difference in my payment? What could it look like? And really piecing that together and talking to your lender about that strategy of should I be putting more or less down based on, again, what I have to do in the future or what's coming up. Because the hard part is once you put all that down, it's really hard to get it back out without doing a refinance or an equity line or something of that nature when you could put a little less down and have some money in the bank. So that's always my advice when it comes down to that. I want to thank our sponsor, Lawyers Title. Yes, title and escrow is probably the most boring part of our industry, but the absolute most important. So if you're looking for a great title partner, reach out to David Bellinger at Lawyers Title here in Phoenix. And they are great partners will take care of you and put you together with the right escrow officer to move your business forward. Thank you, Lawyers Title. And let's get back to the show. If you're in the process of saving money to put down, let me give you a couple other pieces that could potentially help or you might approach with somebody. So one, a family member can gift you a down payment. So I mean, I don't know what the limitations are on it, but a family member can gift you a down payment to get started. So however you work that out with your family member, that is absolutely possible. There are several programs out there that actually might have a zero down based on your income qualifications. There's that piece as well. And then there's just also like utilizing the minimum down, which is 3.5% on FHA, 5% on conventional. So, you know, depending on your price point, like on FHA, you know, a $300,000 home would be $10,000 down. And a lot of times you can get the seller maybe to contribute towards your closing costs. And if you didn't know this, you not only have your down payment, but you also are going to have a closing cost, which is typically 2 to 3% of the loan amount in title, escrow, prorated, taxes, insurance, those types of things. So you do have some cost there to prepare for. There's also the possibility of if you wanted to get into a home, can you partner with a family member, can you do some sort of partnership to get that started? And what that looks like is maybe they're going to co sign with you and you're going to be partners on that property because of your income. They can cosign, you can get into a house, but you're giving them some equity in order to use their credit. That's a great way to start too, because now it's benefiting both people. So I wouldn't hesitate to start thinking about those other ways. If you are caught in trying to figure out, well, how do I buy a house? I'm not ready for it, I don't have the income for it. Now you might have to save and work towards that, but you also might be, you know, like a similar age to like my kids where they're 18 and 20. The reality with their current jobs, they really can't afford a house. But could my kids and two of their friends who all have decent jobs and have a job history, could they basically buy a house together? Sure, absolutely. That's possible, right? So that's where you kind of utilize some of the things around you. Instead of three of you going to rent a house for the next two years, why don't the three of you try to figure out, is there a way we could buy a house together? What does it look like? Who do we need to talk to to discuss this strategy and who's going to help guide us through the partnership aspect of what this looks like? Because technically, you know, you got three people that are all equity partners in it and how do we handle repairs and maintenance and money and all those pieces, which is a whole different topic of conversation. But there are ways to speed up the process of homeownership if you truly want to. If you're looking for a strategy like this and you're looking to work with somebody that can guide you in all of these pieces, please reach out to me. SteveDValentine.com Go to the real estate section, put an inquiry there and where you heard, you know what podcast and let's have that conversation, that strategy session and see how we get you to that point. What's next in your journey of being, you know, from a first time home buyer to actually approaching this with an investment mindset. Guys, I appreciate you joining me today. Steve D. Valentine I look forward to catching on the next episode.