Time is Money: The Price You Pay for Waiting to Buy a Home

Many potential home buyers find themselves in a common predicament: should they buy now with a smaller down payment or save up for a larger down payment?

While a larger down payment may seem like the safer and more financially responsible choice, there are several reasons why buying now with a smaller down payment can be a wise decision.

Firstly, home prices continue to rise year after year. According to the National Association of Realtors, the median existing-home price for all housing types in January 2022 was $356,000, up 16.2% from January 2021. This means that the longer you wait to buy, the more expensive homes will become, and the larger down payment you will need to make.

Buy a home now? For example, let's say you want to buy a home that costs $850,000. You currently have $42,500 saved for a down payment, which is 5% of the purchase price. If you wait another year to save up for a 10% down payment, the home price may have increased to $935,000. In this scenario, you would need to save up $93,500 for a 10% down payment, which is $8,500 more than if you had bought with a 10% down payment the year prior.

Or save and buy a home later? Secondly, each month you throw away the money you pay on rent. If you are currently paying $4500 a month on rent, that translates to $54,000 that you would have paid toward your own equity instead of to your landlord. So just by waiting one year, you have lost a minimum of $139,000 ($54,000 rent and $85,000 in equity lost). But more importantly, rent will go up the following year and saving any more money becomes harder and harder.

Is it worth it?

But what may be the most compelling fact about the entire comparison is that when you compare the differences in the payment from the 5% down payment this year with the 10% down payment the following year, you see that there is only a minor savings. Making it blatantly clear that buying as soon as you have the minimum down payment is the only smart choice.

Principal and Interest on today's loan at $850,000 with 5% down payment $4,335

Principal and Interest on today's loan at $935,000 with 10% down payment $4,517

*Based on a 5% interest rate

Savings of just $182.

At a cost of one year and $139,000. Owning a home provides financial stability and wealth building opportunities. Renting may seem like the cheaper option in the short term, but in the long term, owning a home can provide financial benefits such as building equity and increasing wealth. By buying now with a smaller down payment, you can start building equity in your home and take advantage of potential appreciation in home values.

In conclusion, buying a home now with a smaller down payment can be a smart financial decision for several reasons. Home prices continue to rise, interest rates are at historic lows, and owning a home can provide financial stability and wealth building opportunities. By calculating the costs and benefits of buying now versus saving for a larger down payment, you can make an informed decision that's right for your financial situation and goals.

The Queen of Jumbo Loans has 5% down up to $1.5 Million

Contact me today to learn more (714) 916-7961.