The 20% Down Payment Debacle

If you are struggling to save your 20% down payment mostly because your rent is too damn high, you are not alone. Many Americans are finding this to be a crippling catch 22. It is also not helping the buyers’ market that homes are rising.

People use to save up for down payments with the help of a second job without much problem, but this has become somewhat rare since the recession. The trend now is to graduate from college, move home to pay off debts and get a job, and stash money for a down payment. These are the people who are looking to stay there for more than five years, and potentially raise a family.

New buyers also cannot quite meet 20%; forcing them to get private mortgage insurance. Despite having another bill to pay, your total mortgage payment will be less than your rent. Renters typically spend around 30% of their income on their rent, but homeowners usually spend about 20%.

If you’re in a market that is quite expensive, the lower down payment option could be a good deal for you. If you buy a $300,000 house and put down 5%, you could sell it in 10 years and have accrued the 20% down payment for your next home. If you budget right, you could even have money left for a few upgrades.

Everyone likes getting help from parents, so do that if you can! 

Post a Comment