Dear Big Move,
I’m 55 and gave up my home in my divorce settlement.
I plan to work for another eight to 10 years, make over $500,000 per year, and I am just finishing paying a $7,000-per-month spousal support payment. I have $1.5 million in retirement accounts, but just $160,000 in savings. I currently pay $4,000 in rent.
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However, I don’t have 20% down for a $1.7 million to a $2 million home, which is realistically what I will spend. Any ideas on where to look for low down-payment options for someone in my situation? Any other suggestions are also welcome
Aspiring Homeowner
Dear Aspiring,
You may be facing one of the most expensive periods in U.S. history to buy a house, but that doesn’t mean you’re priced out. What’s more, if you put down less than 20%, you need to pay for private mortgage insurance.
Given that you’re potentially buying a $2 million house, and make an annual income of $500,000, you might not qualify for the plethora of low- and zero-down-payment options. You either make too much money to qualify, or exceed the price limit.
For instance, a Federal Housing Administration loan would allow you to put down as little as 3.5% on a house, but that means that you need to buy a single-family home in the King-Tacoma-Bellevue metro area under $977,500, according to federal guidelines in 2024.
And you know how hard that is to achieve in areas you find desirable: The value of a typical home in Bellevue, a city near Seattle, Wash., is $1.44 million, according to an estimate from real-estate company Zillow Z. In Kirkland, home values average at $1.2 million.
One option you have is to go for a jumbo loan, Scott Ward, a Birmingham, Ala.-based certified financial planner and a CFP board ambassador, told MarketWatch. Jumbo loans refer to a mortgage that exceeds the FHA limit.
“In 2024, a home loan above the $766,550 conforming loan limit in most counties, qualifies as a jumbo loan. [And] to qualify for a low down payment between 5% to 10% for a jumbo loan, you’ll likely need a 700 credit score and a debt-to-income ratio of around 38 to 43%,” Ward said.
With a down payment of 10% and an annual income of $500,000, you can potentially purchase a house for $1.47 million, according to an estimate by this housing-affordability calculator. And that requires a down payment of $147,000, which you have in savings.
Loan rates for jumbo mortgages
Bear in mind that jumbo loan mortgage rates differ from your conventional 30-year loan. The average contract rate for a 30-year mortgage for a conventional loan was 7% as of July 5, but the 30-year jumbo rate was 7.13%, according to data from the Mortgage Bankers Association.
One other idea is to tap into your retirement savings. This is typically not recommended for most people, but since you make $500,000 a year, it might be a strategy that could work in your favor, if you can pay off the loan promptly.
If you participate in a workplace retirement plan, like a 401(k) or 403(b) plan, a loan of up to $50,000 (or 50% of your balance, whichever is less) could bridge any gap on the down payment, Ward said. They also carry low application costs, he added.
Most economists expect rates to decline slightly next year or later this year; during that time, competition will certainly heat up as there will be more buyers ready to jump. However, housing supply is already rising so it’s smart to be patient.
Seattle was one of the metro areas in the U.S. that saw the largest year-on-year growth in new listings last June, according to monthly data from real-estate platform Realtor.com. New listings rose about 31% from last year, and 15.6% of homes had their prices slashed.
To sum up: Yes, you can buy a home with a 10% down payment. Don’t put too much pressure on yourself to buy as soon as possible, just to beat the competition. You need to find the house that works for you, and a financing arrangement that you’re comfortable with.
(Realtor.com is operated by News Corp. NWSA subsidiary Move Inc. MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)
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