Real estate transactions can be daunting for anyone, let alone first time home buyers. Whether you’re considering a bungalow in a beach city, a loft in downtown Los Angeles or a beautiful piece of Indio real estate, there are some standard strategies for planning and saving that anyone can benefit from.
Traditionally, buyers were required to place a down payment that equaled 20% of the purchase price. We saw some very extreme exceptions over the last decade, which ultimately led to the market crash. While some lenders still make it possible to avoid high down payments, the wisest strategy truly is to try to save as significant a down payment as possible, as well as a contingency fund for emergencies. For example, if you’re interested in equestrian properties, there are a lot of additional elements and potential situations that would require you to have an emergency fund, so that you don’t get in over your head.
While it’s important to get advice from an expert regarding your particular situation, the most commonly recommended number is 20%. At that number, many lenders do not require the purchase of Private Mortgage Insurance (PMI), which is an additional cost that protects the lender in case of default. While the number seems lofty, it is safest to work within a range that is comfortable for you financially, and most advisors say that a house may be out of your means if you can’t save up 20% of it. That dream house in the suburbs or that beautiful piece of Indio real estate will require additional funds for maintenance and upkeep, so always make sure to factor those expenses into your family budget.
The benefit of a sizeable down payment such as 20 percent is that it creates instant equity in your home, which can be very valuable to you financially in the long run, especially if you decide to sell the property in the future. However, the 20 percent figure isn’t a diehard rule. Sometimes you may be able to find lenders that will work with you for less, but it’s probably best to not go too low. If you’ve fallen in love with that mansion in the desert or are considering equestrian properties that may be out of your range, make sure to get a reality check from a real estate professional or financial advisor who can help you develop a practical plan within your means.
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