2012 and 2013 saw the return of a busy and competitive Irvine real estate market. Buyers finally got off the sidelines and began snatching up homes and condos in Irvine at record rates, particularly when compared to the the previous 4 years. Throughout 2014, Irvine home sales have slowed as sellers have gotten a little too aggressive in their pricing and lending standards have remained tight. However, the days of multiple offers and bidding wars are not gone, especially for well-priced homes and condos in Irvine.
If you are a potential buyer thinking of buying Irvine real estate, one of the biggest decisions you will have to make concerns your down payment. Before you look at a single Irvine home for sale, you need to speak with your lender to analyze your buying power and your down payment options. While everyone would love to put down as little money as possible, there are a couple of advantages to a higher down payment. First and foremost, your mortgage interest rate will decrease as your down payment increases. 30-year fixed mortgage rates (the most popular loan type on the market) have been below 4% for over a month now, but most lenders will not give you these historically low rates without a substantial down payment (at least 20% of the purchase price). Lenders want as little risk on their portfolios as possible and will reward borrowers who are putting a lot of their own capital into the home purchase.
Another money-saving benefit of a 20% down payment is avoiding paying Private Mortgage Insurance (PMI). As we discussed above, lenders do all they can to limit their risk on home loans, and PMI is a way to do so; this is basically insurance you are required to carry and pay for that covers the lender in the event that you default on your loan. Lenders typically require all buyers putting down less than 20% to pay for PMI until you reach the 20% equity threshold. By putting down the larger payment up front, you can save yourself tens of thousands of dollars by avoiding PMI, which is typically around 1% of your loan amount per year (paid monthly with your mortgage).
Even though a smaller down payment sounds great and is the only option for the majority of Irvine real estate buyers, you can save yourself a lot of money with lower interest rates and no PMI if you can afford a 20% down payment.