Misinformation on Home Affordability Creates Unnecessary Fear to Potential Home Owners
...Between a ridiculous plethora of articles on how millennials and other potential home buyers cannot afford homes, and a substantial recent rant within my social sphere, I think I should address some perspective into the misinformation fueling the fear of breaking into home ownership.
An article published by Westworld in June of 2017 states it could take 16 years for someone to save for a down payment on a home. This information is irresponsibly spun, as is so much of our 'news' nowadays. As consumers we are in an era of being fed content created with an intent to just to create content and the fear based partial truth...and relevant perspective fails as a result. The article discusses a 20% down payment without discussing options and contingency of course making the article completely obsolete.
Sure, it will take more work for a lender or a real estate agent to make situations happen when a buyer has less than 20% down, however there are many programs that make a lot of sense that require less down.
One issue is the negative predetermined belief that mortgage insurance is unacceptable. Mortgage insurance is required when a borrower puts less than 20% down, and can cost at an average of $90 - $150 per month. Mortgage insurance is there to protect the lender as to the risk associated with a borrower having 'less skin in the game'. If a lender has that protection, the loan is less risky, and better options and rates can be offered.
FHA loans can offer a home purchase as little as 3.5% down. Rates are less on an FHA vs Conventional, which helps offset the cost of Mortgage Insurance. Yes, Mortgage Insurance seems to be paid to 'the cloud' as a borrower can not right off the expense on taxes and there is no perceived tangible benefit...however the benefit is the financially unmeasurable benefit of getting into the housing market.
Down Payment Assistance programs exist, and those even offer to cover the 3.5% down payment requirement on an FHA loan, and some closing costs are covered in some programs. This allows for a zero down program. These programs are not difficult to achieve for a borrower, but because they are more difficult for a lender, some mortgage brokers will not even offer it.
Lender Paid Mortgage insurance programs offer a borrower a conventional loan with the Mortgage Insurance premium either incorporated into the rate or payment. This also allows for a lower down payment requirement.
VA Loans do not require mortgage insurance and you can borrow up to 100% of the homes value. USDA loans have less expensive mortgage insurance.
Here is some real logic and perspective...let's get real...The cost of renting every month is ridiculous, not just in monthly payment, but the opportunity cost as you are paying someone else's mortgage off vs paying into your own equity and future. If I don't buy a house now, and if house values continue to rise as experts predict over the next few years...it costs you whatever principle you are not paying into when renting plus the difference of rising home values every month. In a scenario where a home goes up in value $500 per month in this current market (conservative number), a borrower is losing $500/mo plus possibly another $500/mo in payoff...but even more importantly there is a loss of opportunity to gain in that appreciation,, and buying a home becomes even harder as if values increase, so does the down payment and monthly payment, and many other costs relative to home value.
Is paying Mortgage Insurance worth it? Absolutely...if it gets you into the housing market as a home owner. Even buying a smaller place with less updates than you can rent is completely worth it in my opinion. Get in as quickly as possible is my belief. If the market did take a dip, you can wait it out. You don't have to sell the property, and could rent it in a conventional way or in a more modern approach like AIRBNB.
The bottom line is that it is important to talk to a lender and real estate agent that will do the work for you, as the time to achieve these loans and to find a seller willing to accept a bid with less down payment is increased, as is the work load on your chosen professional. As you will hear me say over and over again...it's always who you have on the other end of the phone...
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Thank you,
Sean Michtavy
720.550.2698