Should You Wait for a Larger Downpayment to Buy a Home in Alaska?

"Should I wait to buy a home in Alaska until I have a larger downpayment?" It's a common question on many Alaskan homebuyer minds as of late and yet, the answer may not be what you expect!

The downpayment is an important part of the homebuying process as it will ultimately lower your monthly mortgage payment and if you have saved up the 20 percent, can help you avoid private mortgage insurance (PMI). And while there are mortgage types that allow you to put down as little as 3 percent, many homebuyers are pondering the idea of waiting to buy until they have a larger downpayment.

The main reason for Alaskan homebuyers going this route is avoiding PMI and instead, paying a lower monthly payment, but you may not actually be saving yourself any money by waiting.

Take a $200,000 house for example. If you were to make this home purchase in the near future, with a mortgage rate of 4.5 percent, the difference between putting down 5 percent ($10,000) and 20 percent (40,000) nets a difference of $232 in your monthly payment. Including principal and interest and PMI with the 5 percent down option, your payment would be just over $1,000. By putting 20 percent down and avoiding PMI, your monthly payment comes in just over $800. 

With the current home values and mortgage rates, this may make sense— if you were waiting until now to buy. But there are other important factors to consider if you plan to wait until next year to buy a home in Fairbanks, North Pole, Wasilla, Anchorage, Palmer and Eagle River.

A recent study found that home values will appreciate 4.3 percent over the next 12 months. If you decide to wait until you have saved 20 percent, the amount you saved by avoiding PMI may actually be surpassed by the price you pay for the home. And with rents also projected to increase over the next few years, saving more for your future home may be increasingly difficult.

As your expert real estate team in Alaska, Madden Real Estate is here to help you determine if buying now or saving for later makes the most sense for your personal situation. Contact us today with any questions you might have about the homebuying process— from the downpayment and mortgage options to available homes in the area

Wes Madden, CEO
Madden Real Estate
(907) 452-3000

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