Most people just live on rent their entire lives. But the problem with rent is, once it’s over, it’s gone. You get a temporary living space but you eventually end up with nothing. You leave nothing for your children and they have to start from the ground up. Generations might continue living on rent till someone comes along and shows them the way.
Building your own assets such as real estate is being slowly forgotten because it seems next to impossible to do so. Sure the rich can afford to buy large mansions and travel in private jets, but what about the average citizen who is just starting out?
First things first, you must understand what is a down payment and how do interest rates differ over time. A down payment is the amount of cash you pay to the lender upfront. The remaining amount is issued as a mortgage loan. The larger the down payment and the shorter the term of the loan, the lesser the total amount you have to pay.
For example, you want to buy a house worth $200,000. If you put down 10% as a down payment, you’ll have to pay $20,000 upfront and the remaining $180,000 would be made out as a loan. Now if you got the loan for 20 years, you will get a lower interest rate as compared to if you got the loan for 40 years. This is because the lender has to account for inflation and risk in the long run.
It is alright to mortgage your house because it is an investment in the long run, however it is not advisable to lease a car and pay interest. Real estate is considered to be an asset which usually appreciates in value in the long run whereas cars are liabilities that depreciate in value over time. The quickest way to lose money is to switch cars often.
Now you might have heard that you need at least 20% down payment to get started. This is not true but as a rule of thumb, it does save you from larger monthly payments and gets lower interest rates.
VA Loans and Credit Union Financing
If you have served in the army or navy you might want to look into VA loans which are backed by the Department of Veterans Affairs for veterans and their spouse. Some credit unions also offer these services to family members and the employees of the Department of Defense. Interest rates with these loans tend to be lower as well as the monthly payment options.
Private Mortgage Insurance (PMI)
If you are making a down payment less than 20% then your lender might recommend you to get mortgage insurance or provide these services. It might not be necessary to get insured but it is a way to get that house you always wanted.
Always carefully calculate how much you can afford to pay upfront as a down payment and what kind of a payment plan are you looking for. Always account for emergencies and unpredictable events. Our partners At Forty Acres Lending we will be more than happy to answer all your questions to your utmost satisfaction. For more details call 512.582.7878.