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Why Waiting for a Larger Down Payment on Chicago’s North Shore May Not Save You Money

Preparing to buy a home on Chicago’s North Shore can be overwhelming, there’s no doubt about it. There is much to do to get ready— from grooming your credit score to researching your budget to scouting potential neighborhoods to saving for a down payment. However, if you’ve been waiting to purchase a home until you have a larger down payment, you may be surprised to learn it may not actually save you money.

In considering the following, it is evident that putting down the ideal 20 percent can help you save on your monthly mortgage payment right now:

On a $200,000 Home
Down Payment: 5 percent ($10,000)
Loan Amount: $190,000
Interest Rate: 4.5 percent
Private Mortgage Insurance: $80
Monthly Payment: $1,043

Versus

On a $200,000 Home
Down Payment: 20 percent ($40,000)
Loan Amount: $160,000
Interest Rate: 4.5 percent
Private Mortgage Insurance: $0
Monthly Payment: $810

But will the same be true if you wait to purchase a home in Glencoe, Winnetka, Highland Park, Deerfield, Northbrook, Lake Forest, Wilmette, Evanston, Glenview, Riverwoods, Bannockburn, or the surrounding North Shore communities? While you might believe it’s best to wait until you have saved 20 percent of a North Shore home’s price to buy, what’s more important to consider is the amount of time it will take you to do so.

Home values are projected to continue to increase over the next twelve months and the amount of money you would have saved by avoiding private mortgage insurance (PMI) could actually be surpassed by the amount of money you end up paying for the home.

Consider the extra costs of PMI now compared to the projected appreciation over the next year:

PMI costs over the next 12 months: $2,793
Appreciation over the next 12 months: $8,600
The difference: $5,807

20 percent down is required to avoid PMI, but it is not required to obtain all home loans. There are many mortgage programs in place that allow Chicago area buyers to put down as little as 3 percent on a new home!

Give me a call today to discuss how you can save money by purchasing a home this fall! I look forward to hearing from you!

Janie Bress
Your North Shore Real Estate Expert
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