Why You Don't Have to Worry So Much About Down Payments.

It's a rather safe assumption that most people, especially those reading this, have either purchased a home, or would like to in the future. If the latter is the case, this article might just convince you to pull the trigger on becoming a new homeowner.

It’s the American Dream to own a home, and to be in control of one’s finances. But more than that, it is actually cheaper to own your own home, than to pay rent.

This is because paying rent usually means that you are paying the homeowner’s mortgage, and a little extra. Many people understand this, yet there are many who continue to pay rent rather than own a mortgage.

While reasons for not owning a home can vary, there is one which is very common among millennials. It is rather simple, and something that many who have sought to purchase a home have run into in the past.

Down payments can be EXPENSIVE!

Consider for a moment, the cost of putting 3% down on a $200k home. The down payment would be around $6000 dollars, which is much more than many people have saved in their bank accounts. Especially if they are living from paycheck to paycheck! For many Americans, this is a bit out of their price range.

But, did you know that some lenders are willing to gift borrowers 2% of the down payment? This leaves just 1% of the down payment left for the potential homeowner. In the case of a $200k home, that would be just $2,000. For many, this is around the price of 2-3 months’ rent. Depending on the price of the home you decide to purchase, this number could obviously be much lower.

So, how does it work? And why would lenders be so willing to gift 2% down?
Depending on credit history, income, and other factors, some lenders are willing to front the 2% down payment to incite home ownership, while the borrower benefits from having to put hardly anything down, the lender benefits from having more borrowers.

If the only reason you aren't currently living in a home you own, is because of the down payment, it might be time to consider making the purchase. Two months rent, that's all you're going to need. 

If you would like more details on how this can work for you, please feel free to give us a call anytime!

A Growing Utah: Everyone wants to live here (and buy our houses!)

A review of some key reports from 2016 yields some revealing information about how much Utah is growing, and what that’s doing to the real estate market.

Fastest Growing State

The US Census Bureau declared Utah the fastest growing state in the country, with a 2% population increase in 2016 (reference this article: http://www.builderonline.com/design/consumer-trends/census-utah-leads-all-states-in-growth-in-2016_o).  Compare this to the national average of only 0.7%.  The country in general is seeing a migration from the northeast (avoiding extremely high tax rates/costs of living) to states in the south, west, and southwest, and some of that population growth can be attributed to birthrate (we Utahns like to have babies!), but a large driver seems to be Utah’s fast-growing high-tech industry (the “Silicon Slopes”).  Having many Utah cities (Orem, Provo, Salt Lake) being listed at the top of many “Best Places to Live” surveys helps to!

…And People Need a Place to Live!

In 2016, home values increased 7.1% and are expected to rise another 5% in 2017.  Compare that to the national average of 4% (the rate of real estate appreciation nationwide).  Salt Lake City, Provo, and Ogden are all “sellers’ markets”, with very strong buyer demand, but are still considered affordable areas.

What Does this Mean for You?

If you’ve owned a home for the last few years, you likely have equity.  If you’re thinking about “trading up”, that equity can cover the down payment for your new home (and then some!).  Be prepared, though, to compete with multiple offers, and low-balling will probably get you nowhere (unless the home is significantly over-priced).  

Retiring a Millionaire: Why Owning a Home is King

Image by UnSplash

Becoming a millionaire is the quintessential American dream.  While seemingly lofty, it is an achievable goal (there are about 11 million millionaires in the US as of 2011) and it is accomplished in a variety of ways: most people save it, many invest it, some start successful businesses, some buy the right scratch-off, Bernie Madoff steals it, etc., but we’re going to briefly discuss the most reliable, least labor-intensive, and most boring way of becoming one of the 2.5-Percenters: owning a home.

The reason that homeownership is such a beautifully simple and inexpensive way to wealth is because housing costs are required living expenses (unless you are happy living in mom’s basement and she’s nice enough to let you stay there for free).  You have to eat, you have to sleep and wear clothes (please), and you have to have a roof over your head.

You’ve got 2 housing options: rent or own.  Renting provides no return on investment.  The rent you pay is like credit card interest: aside from giving you a month’s reprieve from the landlord, there is nothing to show for it in the end.  Owning (assuming you pay a mortgage instead of a rent payment) leaves you with something: a house.  Add to that the predictable nature of housing prices to rise and you have the recipe for millionaire-ship.

Example:

Homeowner Joe buys a modest house for $254,000 in Salt Lake City (the average home price these days).  He puts down 5% and his total mortgage payment is about $1300 (which is significantly less than rent for that same home in Salt Lake).  It’s a 30-yr mortgage and he doesn’t refinance (for simplicity’s sake) for the life of the loan (the next 30 years).

Joe has a relatively hard life for the next 30 years.  His income is limited and he is never able to set aside anything for retirement (like an IRA).  Nor does he work for a company that offers a 401K.  In short, Joe has nothing to expect in the way of retirement income (except Social Security).

But, Joe is a millionaire.

Over the last 30 years, Joe has slowly chipped away at his mortgage.  Bit by bit each month, the home becomes “his”.  Also, the price of his home increases by an average of 4.00% each year (100-yr average and a modest estimate for Salt Lake).  When Joe finally does retire at age 65, his mortgage balance is “0” and his home is worth $1,002,000.

And because math hasn’t changed since you’ve been in 1st grade:  $1,002,000 - $0 = $1,002,000!

Joe can keep his home (his housing expenses will be cheap since he has no mortgage), rent it out, or sell it and rent a condo in Florida (just as rest stop for his constant travels).  That $1,000,000 could equate to $6000/month in income for the next 20 years (if put in a conservative annuity).

Or he could convert it to nickels, buy an old empty swimming pool, and go swimming in his own “Money Bin”.  Every day.

Notes/Disclaimers

We are huge proponents of diversification, especially IRAs and 401Ks.  If Joe did have a 401K and they matched his contributions, putting aside just $150/month would give him another $600,000 at retirement.

Also, poop happens, and Joe/you may have to refinance at some point to cover unexpected medical expenses, job losses, divorce, etc.  You may find yourself approaching retirement and still having 15 years on your mortgage.  The point is that if you are a homeowner, you at least have the option of doing those things!  Renters can’t cash-out equity to pay for medical bills because there is no equity.  Even if your home isn’t paid off at retirement, you still have the equity (the difference between the home’s value and the balance of your mortgage) which could be substantial.

Call Evergreen Mortgage today.  We’ll come to you to discuss your home-buying options.  

Or buy more scratch-offs.