Читать книгу Home Buying Kit For Dummies - Eric Tyson - Страница 63

Ideally, when buying a home you should have enough money accumulated for a down payment of 20 percent of the property’s purchase price. Why 20 percent and not 10 or 15 or 25 or 30 percent? Twenty percent down is the magic number because it’s generally a big enough cushion to protect lenders from default. Suppose, for example, that a buyer puts only 10 percent down, property values drop 5 percent, and the buyer defaults on the loan. When the lender forecloses — after paying a real estate commission, transfer tax, and other expenses of sale — the lender will be in the hole. Lenders don’t like losing money. They’ve found that they’re far less likely to lose money on mortgages where the borrower has put up a down payment of at least 20 percent of the property’s value. (Unfortunately, lenders and the folks in Washington forgot this fact, which led to the late 2000s real estate market problems and high levels of foreclosures.)

If, like most people, you plan to borrow money from a bank or other mortgage lender, be aware that almost all require you to obtain (and pay for) private mortgage insurance (PMI) if your down payment is less than 20 percent of the property’s purchase price. Although PMI typically adds several hundred dollars annually to your loan’s cost, it protects the lender financially if you default. Should you buy an expensive home — into the hundreds-of-thousands-of-dollars price range — PMI can add $1,000 or more, annually, to your mortgage bill. (When you make a down payment of less than 20 percent, you can also expect worse loan terms, such as higher up-front fees and/or a higher ongoing interest rate on a mortgage.)

PMI isn’t a permanent cost. Your need for PMI vanishes when you can prove that you have at least 20 percent equity (home value minus loan balance outstanding) in the property. The 20 percent can come from loan paydown, appreciation, improvements that enhance the property’s value, or any combination thereof. Note also that to remove PMI, most mortgage lenders require that an appraisal be done — at your expense.

Note: If you have (or expect to have) the 20 percent down payment and enough money for the closing costs, skip the next section and go to the section on how to invest your down-payment money.