The Right Time to Save for a Down Payment
Experts can debate for hours about the direction of the housing market. But there’s little to not arguing over this fact:
It’s always worth your while to start saving for a down payment. Especially now. Why? Let’s explore a few reasons …
- Right now, time is on your side. With home prices falling in many regions, there’s less danger of getting priced out of the market by appreciation while you take time to save. Some experts say home prices are poised to run in place in 2007 and may not begin to warm up for another run until 2008.
- Right now, getting hooked by lures of easy-money and high leverage, low- and zero-down payment mortgages to finance for as little out-of-pocket money as possible right now is getting risky. High leverage loans are much
better suited for a fast appreciating market where your home quickly generates equity to compensate for your small or missing initial stake.
- Saving reduces costs. Save enough for the down payment and you can remove the need to pay back another bill, such as a second mortgage, to cover the down payment, while you also struggle with the first mortgage. Saving also gives you the opportunity to lower financing costs, especially the cost of mortgage insurance, which you won’t have to pay if you have 20 percent or larger down payment.
- Even saving only enough for all closing costs, property insurance and other initial costs to finance your home is a worthy goal that takes some of the financial bite out of home ownership.
- The more you save, the more mortgage lenders like you. That’s because the larger the personal stake you have in your home, the more you lower your risk of defaulting. Your stake is instant equity to burn should you need it down the road for emergencies and/or as some protection against flat and falling prices.
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