READER QUESTIONS
Live in your dream home now while you save for it!
Question
I am 37 years old, just married with a baby on the way. My goal
is to buy a house or condo in the next two years. I have saved
$10,000, but I want to put down at least 20% and get a mortgage
for 80% to avoid PMI. I see houses I like but they start at $300,000.
What do you suggest?
Tom, NY
Answer
Hey Tom,
Well, let’s do the numbers. Assume you find your dream house
and the price is $300000. You will need a down payment of $60,000
(or $50,000) more than you currently has, plus money for closing
cost (estimate another $10,000). This is doable if you can save
on average $2500 per month. However, here is what you are up against.
During those two years of saving, you have to live somewhere, plus
housing price will not stand still. On the low end, real estate
appreciate in value at about 5 to 8 percent per year, so by the
time you saved that $60,000 in 2 years, the house you had your
eyes on would have been gobbled up by somebody else and the next
best thing may be priced out of your reach. Plus, assuming you
have been renting during this time you could have already sunk
as much as an additional $60,000 into unrecoverable rental expense!
At that point you are faced with the decision to wait a while longer
as you save up a new higher down payment and hope the housing price
do not move out of your reach again, or bite the bullet and
buy less than you really wanted or take a larger loan and incur
the PMI.
However, you do not have to go through all that drama. You can
actually occupy that dream home now as you save the down payment
to buy it. Here are some advantages of this option:
- The price of the house is fixed for the two years while you
are saving. It will never go up, even if the appraised value
goes up! You therefore can have huge equity in your home even
before you buy it!
- You know now what you will pay for the house 2 years from now!
- You therefore know today what your maximum down payment amount
will be.
- Remember that extra $60,000 in rental expense during those
2 years? Well, you won’t have to incur it, because you
will be living in the house of your dream already!
- You will have the absolute right to buy this home in 2 years
but you are not obligated to do so. You can live in it, try out
the neighborhood, and when the down payment is saved up, purchase
the house, guaranteed! However, if your plans change or you decide
you no longer like this home or neighborhood, you can walk away
from it, no obligations!
- And here is the kicker! Your housing monthly payment can help
reduce your cash outlay requirement when you are ready to buy!
Sounds too good to be true? Well, guess what… it is true!
You can be living in your dream house up to two years before you
buy it and, in many cases, have your purchase down payment already
paid up by the time you are ready to get bank financing to complete
the purchase. Just ask your seller about Rent To Own or Lease/Option
or Lease with Option to Buy.
If you have
additional questions please call us today at 914-906-7916 or email
us at llabeach@L2Resources.com or fax 772-679-0973
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