You Might Not Need to Save as Much to Buy a Home as You Think

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When I was in my early twenties, I thought that buying a home someday was inaccessible–an achievement that would always be too expensive and too difficult for me. Now that I’m almost 30, however, my partner and I have started to plan to buy in next couple of years, and this dream feels much closer to reality.

Especially for first-time buyers, the thought of purchasing a home can seem like a colossal mountain to climb. However, buying a home is one of the best ways to build wealth, and it also might not be as difficult or as costly as you think. For more personalized help buying a home, be sure to get in touch with the SeaReal Team at 206-518-5518 or info@searealteam.com. In the meantime, here are a few tidbits about why buying a home might be less formidable than you think.

1. You don’t necessarily need a 20 percent down payment.

Most people think that in order to buy a house, they need to be able to afford a 20 percent down payment. However, this isn’t quite true. According to the National Association of Realtors, 73 percent of first-time buyers who closed on homes between April and June of 2017 put down less than 20 percent. Additionally, 61 percent of recent first-time buyers put down less than 6 percent.

I’m definitely not saying that it’s easy or a good idea to buy a home without any savings whatsoever. It’s always smart to prepare to put 20 percent down on your new house if you can. However, not having a 20 percent down payment doesn’t necessarily mean that you can’t buy a house.

Just keep in mind that paying a smaller down payment is riskier for lenders, so if you choose this option, lenders might require you to pay a private mortgage insurance (PMI), which will be added onto your monthly mortgage payment.

2. There are many new programs that can reduce down payments.

While you still need a good credit score and some savings to buy a home, there are many new options to make buying easier. In 2014, Fannie Mae and Freddie Mac introduced programs that allow buyers to put down as little as 3 percent on their homes.

3. If you have student loans, recent Fannie Mae changes can help.

Fannie Mae is making it easier for individuals with student debt to buy homes (and continue to pay off their debt). The three new changes include:

  • expanding cash-out mortgage refinance options, which allow potential buyers to trade student loan debt for lower-rate home loans
  • allowing borrowers to exclude debt being paid by others (parents or employers, for example), which gives them a better debt-to-income ratio
  • allowing lenders to factor in the borrower’s lower, income-flexible student loan payments when calculating an applicant’s debt-to-income ratio

4. The limits for home loans were recently raised.

Finally, in 2016, the Federal Housing Finance Agency raised the limit on loans that qualify for purchase by Fannie Mae and Freddie Mac. Starting in January 2017, the loan limit for single-family homes increased from $417,000 to just over $424,000.

So, take a deep breath and get excited. Buying a home is most likely easier than you think. If you’re interested in learning more, real estate agents are your best advocates and can make this often confusing process much less overwhelming. Contact the SeaReal Team today for more help (206-518-5518 or info@searealteam.com).