Buy now or save for big downpayment?

Q: I would like to buy a home right now. This seems like a really basic question, but I'm not sure whether it's better to wait and save the 20 percent down or to just buy with the minimum 3.5 percent downpayment? I feel like if I save the 20 percent downpayment it won't be a buyer's market by the time I have the money.

A: The decision as to when to buy (or sell, for that matter) to best take advantage of market dynamics faces every real estate consumer.

Mindset Management

I generally advise buyers and sellers to make their real estate moves at the time that makes the most sense for their lives, rather than trying to time the market at all. Smart buyers and sellers use what's going on in the market to direct their specific strategies for executing their real estate decisions (e.g., how much to offer for a home, or how much to price their home at), whenever it is that they decide to make a move.

The upshot of this general rule is that your buying timeline and strategy should be custom-tailored to your life. Don't tailor your life to the market -- if you're ready and want to buy now, get a professional's personalized assessment of what purchasing power you have now. A good mortgage professional will also help you create a savings target and action plan in the event your current resources aren't sufficient to buy the sort of home you want and need.

Need-to-Knows and Action Plan

The amount of money you have at your disposal for cash to close (downpayment and closing costs) is only part of the total financial picture of your home purchase. That number interacts with your credit score, interest rate, property taxes, monthly mortgage payment and purchase price (among other things) to create the holistic financial snapshot of what buying a particular property at a particular spot in your process of saving downpayment money.

Without this holistic snapshot, you've got nothing more than someone else's general rules of thumb on which to base your decision. One person might say you should never buy with less than 20 percent down; another might advise you to buy as much as you can as soon as you can scrape up the minimum 3.5 percent downpayment for an FHA loan.

Neither piece of advice is right or wrong for every homebuyer. The fact is, you need this holistic snapshot in order to make a decision that makes sense for you. ...CONTINUED

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