Buy a Home Now or Save for a Down Payment?

Home shoppers who qualify for a no-down mortgage could be better served if they buy now, rather than wait and save for a down payment.

OREM, UT 84057, UT, March 03, 2019 --( One of the issues Realtors often run into is whether potential buyers should buy now or wait and save for the down payment.

“The answer is, it depends,” said Rodger Hardy, a Realtor with Coldwell Banker Residential Broker in Orem, Utah. “Many potential buyers qualify for no-down mortgages, such as Utah Housing, USDA Rural Housing or loans backed by the Veterans Administration. They may also qualify for a down payment assistance grant,” he said.

However, potential buyers must be able to qualify for those loans, including having their debt to income ratio in line.

“I can understand young buyers wanting to have a better down payment when they buy a home. They are not alone in thinking that way. But let’s take a moment and assess how that thinking applies to current market conditions,” he said.

In 2018 Utah County home prices increased some 9.2 percent, including all residential types. Home prices will likely go up about half that much this year. But even if they go up just 5.5 percent, that’s more of an increase in wealth than they’ll get stashing their money away in a bank, he asserted.

“You see, bank saving accounts are the most inefficient way to gain wealth there is. If they qualify for a no-down Utah Housing loan their newly purchased home will likely gain them much more wealth in the form of equity quicker, then if they wait to buy,” he added.

In just a few months the home they wanted could be more expensive than if they bought it now as prices and interest rates continue to rise.

Down the road as the home increases in value the likelihood of refinancing to a lower interest rate increases until they have 20 percent in equity.

“There are no signs of a housing bubble like 2008. We are in a very different market now,” he said, referring to the housing crash of a decade ago.

“Another issue with waiting and saving, rather than buying now, is that they have no tax advantage with socking money away in a normal savings account, which is taxed as ordinary income. On the other hand, homeowners get a huge tax write off on the interest they pay on their mortgage. Think of the advantage a first-time buyer has with a no-down program like Utah Housing, Rural Housing, VA or even a grant program. Paying a mortgage becomes a form of forced savings.

“Not only that, buying a house is like adding at least four kids to your family as far as tax deductions are concerned. You can claim that right now, reducing the tax bite on your salary.

“Also consider inflation. While money is sitting in a savings account it is likely losing more value than it is earning in interest, but buying a home is a more wealth-building investment as it gains value. A dollar buys less tomorrow than it does today.

Hardy suggests that if a family, couple or individual buys a home now for the average Utah County price, about $350,000, for example, and put nothing down using one of those available programs in a year that home could be worth 5 percent more, or $367,500. Real estate researchers predict an average 5 percent appreciation rate in 2019. According to the Federal Housing Finance Agency’s Quarterly Home Price Index report home prices across the nation are already up 5.7 percent from a year ago.

“Which way would you be better off,” he asks, “buying now or saving for a down payment when you may qualify for a no-down mortgage, depending, of course, on individual circumstances.”

Dividing the Utah County market into two categories, single-family and attached housing (condos, townhouses and twin homes) appreciation becomes a bit more defined.

From January 2018 to January 2019 the median sales price for a four bedroom, three-bath, 2,800-square-foot home rose from $320,790 to $345,000, an increase of 10.3 percent, according to the Wasatch Front Multiple Listing System. The average market was 45.3 days with sellers getting 97 percent of asking price.

In the attached home market, condominiums, townhomes and twin homes, the median sales price for a three-bedroom, two-bath, 1,628-square-foot residence rose from $213,715 to $239,900, an increase of 12.2 percent, according to the MLS. The average market time was 24 days with sellers getting 99 percent of their asking price.

“So before you decide to wait it out and save for a higher down payment, especially if you qualify for a no-down mortgage, carefully consider your next best step,” he said.

Hardy has been a licensed Realtor in Utah since 1994. To contact him call 801-360-9133 or email him at
Rodger L. Hardy, Realtor
Rodger L. Hardy