Podcast - 071: Should I wait until I have 20% down to buy a home?

In this podcast realtor Anthony Luevanos and lender Angel Luevanos break down whether it makes more sense to purchase with a smaller down payment or to wait until you have 20% down. They run two scenarios that will help you get a better understanding.

Option 1: Purchasing an $825,000 home now with 5% down, then refinancing in 2 years to drop the private mortgage insurance fee.

*$825,000 is the current median sales price using a rolling 12 month average in Los Angeles County

Option 2” Purchasing a $972,105.96 home in 2 years with 20% down.

*972,105.96 is the projected median sales price using the current 5-year appreciation rate of 8.55% for Los Angeles County

Comparison after 2 years:

Conventional 5% down at $825,000
Downpayment: $41,250
Equity: $215,224
Monthly payment: $5,032

Conventional 20% down at $972,105.96
Downpayment: $194,421
Equity: $194,421
Monthly payment: $5,292

With option 1, you can see that it required a smaller down payment, you will have more equity, and your monthly payment will be more affordable. So why not just purchase now?

The initial monthly payment at 5% down will likely be more expensive than you’d like. 

We recommend setting aside reserves that you can dig into monthly so that the down payment is more manageable. For instance, instead of putting 10% down, put 5% down and set aside the other 5% into a mortgage account. Then, pull $500 - $1,000 a month from that mortgage account to help your pay for the higher monthly mortgage payment.

Let home appreciation work for you and not against you.

Given the current appreciation rate, within 2-3 years, you should have the equity to refinance or reappraise the property and remove mortgage insurance. Once you do that, you’ll likely find yourself with a considerably more manageable monthly mortgage payment. 

This market is tough, and we understand that. So we made a free eBook to help you. “How to get a good deal in a seller’s market” eBook