Should you keep saving up money for my down payment on a home? Or should I just buy a home now? San Diego realtor Jeremy Mchone talks about the pros and cons of saving to have a larger down payment vs if you were to buy a home now.

Should I Wait to Buy a Home to Save More Money, Or Buy Now?

Are you trying to decide if you should save 20% to buy a home, or just buy one right now with a smaller down payment? If so, I'm going to go through the pros and cons of each, so you can decide. I'm Jeremy McHone with the Whissel Realty Group and I just want to talk to you today about down payments.

A common theory with putting money down to buy a first home is that you need to have 20%, and the logic behind that is that if you put less than 20% down on a home, you pay what's called mortgage insurance, which is just an extra fee you pay every month with your payment. A lot of people think why would I pay an extra fee every month? I'll just wait till I have 20% down, so I'm not throwing that money away.

And I see the logic behind it, but there's still more to the decision than that. Let's think about it this way. If you're saving right now to put money down to buy a home and you're saving an extra $1,000 per month to buy that home that, right now, costs $500,000, let's fast forward a year from now and see how it's working out for you.

A year from now, you've got $12,000 saved up. However, over the last year, in San Diego County, homes have been appreciating by about 1% a month. That home that was $500,000 last year, now it's $560,000. That means that your down payment for 20% down went from 100,000 to 112,000, which means that $12,000 you saved up in that year, just got wiped out. It didn't get you any closer to buying that home, and the home is more expensive.

And the reason I point this out is you have to realize that when you're saving for 20% down, you're saving for 20% of a purchase price that's actually increasing over time, and right now it's increasing about 1% a month. That goal is actually getting further away. Now let's look at the flip side. What if instead of saving, you were to buy that same home right now and put 3.5% down? You put $17,500 down today. Now, let's fast forward that same year. Now, a year from now, you own that house. Now it's got $60,000 worth of equity that got built up without you having to invest any money out of pocket into it, plus the 17,500 you put in, now you're up to $77,000 worth of equity after just one year.

Now, the other thing to think about too is once you have that 20% equity in the house, you can actually get rid of your mortgage insurance. That theory of I got to save so that I can, I don't have to waste that money, you can actually get rid of that fee you were trying to avoid and have the upside of all the equity from the appreciation that happened in that year since you've owned the home. There are pros and cons on both sides. I can tell you that I personally bought my home with a 3.5% down FHA loan. I've owned it for about three years and I just refinanced it.

Now, I have no mortgage insurance and I have over $100,000 in equity, all from a 3.5% down FHA loan. When you're thinking about whether it makes more sense to save or pull the trigger right now, why don't we go ahead and talk and we can weigh the pros and cons together and see what makes sense for you? Comment below, or shoot me a DM or give me a call or text at the number below. I'm Jeremy with the Whissel Realty Group. Thank you.

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