Two people standing in the kitchen of a house for sale with a real estate agent.

Suze Orman says to take these 4 steps before buying a home with a low down payment

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Don’t let a low down payment hurt your overall financial picture.


the main points

  • Ideally, homeowners will pay a 20% down payment to avoid the costs of private mortgage insurance.
  • Not every home buyer has 20% to give up.
  • Suze Orman says it can be okay to do less quenching, but only if you take a few key steps first, including providing an emergency fund.

If you are planning to buy a house and are going to take out a mortgage to do so, it is best to make a down payment of 20%. This means putting in $20,000 for every $100,000 in the value of the home.

A 20% down payment allows you to avoid having to purchase a special type of insurance called private mortgage insurance. PMI protects mortgage lenders from losing money if they have to foreclose. Since loans with 20% down payments are not risky, placing lots of loans also enables you to get better rates and borrow from a wider range of loan providers.

Unfortunately, it can be difficult to save enough to smash a lot. If you are considering buying a home at a discount of less than 20%, this may not be the worst idea in the world as you can acquire a property and start building equity and benefit from property appreciation sooner. But you don’t want to move forward unless you are in a good position to do so.

Financial expert Suss Orman recommends some basic steps you should take before buying a home with minimal cash. That’s what Orman said.

Four requirements of Suze Orman to buy a house with little money

While Orman has made it clear that she has “always had a general rule of thumb to cut at least 20% so you don’t have to pay PMI”, she acknowledged that people who really want to become homeowners ASAP don’t necessarily have to wait until they can do that. She thinks it’s okay to go ahead with a 10% down payment if you meet four main criteria:

  • Providing a fully funded emergency fund: Orman advised saving enough money to cover the equivalent of eight to 12 months of living expenses. A large emergency fund will help cover repair bills and ensure that you pay off your mortgage even if your income drops. You will also be more willing to cover any repair expenses that may arise once you become a homeowner.
  • Pay off your credit card debt: If you have paid consumer debt, you should be able to qualify for a mortgage more easily since the debt-to-income ratio is an important factor that lenders take into account. Having no other debt payments will also make it easier to ensure that you are able to cover your mortgage.
  • Fully Fund Your Retirement Accounts: Orman cautioned not to jeopardize your ability to earn your full employer match or meet your retirement savings goals by buying a home that interferes with your ability to invest in the future.
  • Ensure your income is stable: Finally, Orman stressed the importance of making sure your job is secure so that you continue to get the paychecks needed to pay your mortgage bills.

By meeting these requirements, you can ensure that you are in a good financial position to meet the responsibilities of home ownership, even with a smaller down payment. But if any of them aren’t there, you might want to delay until you’ve got all of your ducks in a row. “If you think it will work [you] Orman advised: “House rich and poor cash, I’ll wait at this time.”

Should you listen to Orman?

Orman made some strong points and provided insight into the critical steps needed to be ready to own a home—especially when you’re not making a large down payment.

The truth is, the risk is even greater when you commit to buying a home without a discount of at least 20%. You may find yourself owing more than the value of the house or you may struggle more to make payments due to the higher loan amount. You don’t want to get into this situation, so completing Orman’s recommended steps before moving forward is the smartest move you can take.

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