Saving for a down payment will lower their costs and give them both security and flexibility, advises Michael Eisenberg, a CPA and financial adviser in Los Angeles. With a zero-down-payment loan, "you aren't building any equity in the early years," says Eisenberg. "If you're forced to sell, you could lose money."
Equity in your home also gives you a source of cash in an emergency. And the bigger the down payment, the lower your monthly payments, which may mean one of you can afford to stop working, if you wish.
Buying a house with no money down comes at a price. With less than 20 percent equity in a home, you'll generally have to buy private mortgage insurance, which costs up to 1 percent of the loan amount. In the Gees' case, that could mean $3,000 per year because homes in their area sell for $300,000 or more.
Many young couples, like the Gees, have financed their first homes with one-year adjustable-rate mortgages. If your ARM is about to rise, think twice before you switch to a fixed-rate loan. You may still be better off keeping the ARM. It all depends on how long you expect to live in the house.
If you'll be moving in a few years and can afford to make higher payments in the meantime, you'll avoid refinancing costs and a possible prepayment penalty for getting out of your ARM. Even after the first adjustment, some ARM rates are still lower than current fixed rates.
But if you think you'll be in your home for a while, you may want to compare your current rate -- and possible future increases -- to a fixed-rate mortgage or a hybrid ARM with a longer period before the rate adjusts, such as seven or 10 years.
Current rates on long-term loans are still reasonable. "If rates go up, locking in is a smart decision," says Michael Kozak, a financial planner in Marblehead, Mass. "If rates go down, you always have the option to refinance."
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