While nearly 40 percent of aspiring homeowners believe they need to put down 20 percent on a home purchase, the truth is the average down payment was just 11 percent in 2016, according to the National Association of REALTORS®. To help your clients understand the strength of their current financial profile when it comes to buying a home, mortgage industry blog MGIC Connects has created a Buy Now vs Wait calculator that can show them whether they’re better off waiting and continuing to save for a bigger down payment or buying now with less money upfront.
The calculator factors in information such as the current rent your clients are paying, the amount of their monthly savings, and creditworthiness. Users can submit other information such as desired home price, the current amount of savings for a down payment, and an estimated interest rate. MGIC Connects offers the following example of how its calculator works:
A consumer has saved $10,000 of the $40,000 needed for a 20 percent down payment. She can add about $6,000 a year in savings to that. She wants to purchase a $200,000 home. The calculator allows her to see the cost of the home purchase if she did a 3 percent or 5 percent down payment. The calculator also shows that if homes prices appreciate, say, at 3 percent annually, the amount she’d need a 20 percent down payment would be $48,552, and she would need more than 6 years of savings before she could buy.
During that time, she will have paid more than $80,000 in rent, while her home equity position would be more than $72,000 had she bought six years ago. None of this is meant to encourage prospective borrowers to buy a home before they are ready. It is in everyone’s best interest for borrowers to succeed, so borrowers need to be comfortable not only with the mortgage payment but also the other responsibilities that come with homeownership.