We all know that in order to obtain a mortgage on a residence, the general rule is that you usually need to be able to come up with at least 20% of the purchase price to "put down". No matter where you live that number can be very daunting, but probably nowhere more so than in New York City, where a shoebox-sized apartment starts around $250,000 and the median price of an apartment is a whopping $980,000!!!
The Condo Exception...
The thought of building equity, getting a tax deduction, and putting an end to "throwing away" money may seem like some pretty good reasons to say sayonara to renting and join the world of home ownership. But can you make it work with just 10% down? We talked to Stash Wealth's resident real estate expert, Jennifer Taylor of Taylor Real Estate Group, to find out the truth behind putting 10% down on your home.
1. Will my interest rate be higher if I put 10% down?
It's a common question in today's world, when putting 20% down on properties is becoming the norm. With all the other financial challenges we're up against, it's hard for many of us millennials to save 20% for a property. So the quick answer is "yes", your interest rate will be higher - by roughly 3/8 or 0.375%. But with interest rates so low, why wait to save another 10%?
2. Will I have PMI with 10% down?
Private Mortgage Insurance a.k.a PMI fees are variable. They depend on the size of the down payment and your credit score. They are normally between 0.3% - 1.5% of the original loan amount, on an annual basis. Keep in mind that the PMI fees may be tax deductible depending on IRS rules in a given year. Also, on conforming jumbo loans under $625,000, the PMI is built into the rate. While this may not sound particularly thrilling, it keeps things simpler for you - which is never a bad thing.
3. How much can I borrow just putting 10% down?
Taylor says this varies from bank to bank, but 10% down is flexible up to a $625,000 loan amount. Over $625,000, the programs tend to be tighter and harder to qualify for. Moral of the story, make sure to have great credit and talk to a loan officer.
4. How much cash reserves do I need to qualify?
When you close on a home, banks want to see that you have the means to continue to make payments on the property. As a general rule, they will require a reserve of up to 12 months worth of monthly payments of the loan. Keep in mind, this depends on certain circumstances (i.e. size of loan, profile of transaction, principle/interest ratio, taxes and insurance). Jennifer says it's best to provide your specifics to a real estate or banking professional to learn how this would apply to your particular situation.
5. How much should I save for closing costs?
For purchasing a condo under $1M, you should plan for a minimum of 2.5% of the purchase price or up to 4% if it's new construction. If the property is over $1M, add in another 1% for the mandatory mansion tax.
It's good to have a rough idea of these numbers before you go into your closing. Ask your mortgage broker for a complete breakdown to avoid any surprises.
For additional details or to get in touch with Jennifer directly, please visit Taylor Real Estate Group.