Do I need to save 20% to buy a house?
Conventional wisdom says “yes” however with modern lending interest rates & mortgage insurance rates the answer is “if you have to save the 20%, NO if you just have the 20% available then go for it”. Interest rates are at a point that it makes sense to borrower as much money as you can & to keep as much cash in your bank/investments as possible. This is twofold, first there is a good chance that your money if invested will make more than what it would cost in mortgage interest. Secondly, these are some wild times & with the uncertainty of politics you never know what catastrophe is right around the corner, during the lock downs I remember wishing that I had more money so that I could do whatever I want. In addition to those fairly common-sense ideas, mortgage insurance is so cheap that you won’t be saving enough money, mortgage insurance rates are about a third of what they used to be with a high monthly insurance rate being less than $250 per month & that’s at 5% down payment, also there is an even larger discount if your bump your down payment from 5% to 10% down payment. So with median home prices on the rise, we are seeing average purchase prices creeping up over $300,000, so to put 20% down over 5% or 10% means that you will shell out $30,000 to save maybe $400 per month. This means that it will take you 75 months to the money back into your account, so for me I would rather have a bank account with an extra $30,000.
