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Buying a Home With Little To No Money Down

For many home buyers, especially first time buyers, saving enough for a down payment is the biggest barrier to purchasing. Clients often feel they need to wait another year or two until they can save enough for a bigger down payment.

Putting the largest possible amount down is typically a good idea, however the hidden and unspoken challenge is that in an increasing market like Phoenix, it is usually very difficult for buyers to save at a rate equal to or faster than the increases in home prices. Unless you are saving $1,000 or more per month, the down payment you will be able to make as a percentage of the home price changes very little after a year or two of additional saving, and could in fact be less.

For example, if you wish to purchase a $250,000 home and want to put 5% down, you need $12,500. If you only have $6,500 you need to save another $6,000 ($500 a month) over the next year to get to 5%. However, based on current market trends, in one year the value of the same home will be $272,500, meaning that after you have finally saved your $12,500, you now will only have a down payment of 4.5%. In other words, not only did your down payment shrink as a percentage, but now your payments will be larger since you will be taking on a bigger loan to accommodate the higher home price.

While this may be disheartening, it doesn’t have to be. There are programs that we work with called down payment assistance programs (DPA) that most people are not aware of, and they are relatively straightforward and widely available. DPA programs literally make the down payment for you, usually up to about 5% of the purchase price, and you do not have to pay it back as long as you keep the home for a set period of time (typically just 2 years). That’s it. It’s that simple.

If you are interested in learning more about one of these programs, please reach out to me to see if there is one that would be a good fit for you.

-Tom Wolf, Phoenix Arizona Real Estate Agent

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