Should You Save For A Large Downpayment?
There are several considerations when deciding on the timing of buying your next home. Nobody has a crystal ball to forecast the future, but the next best thing is having a great handle on the Tallahassee housing market.
A study of supply and demand for homes like the one you would like to buy (and the one you have to sell) are an important first step. I am going to state that the market is poised for higher-than-historically-normal appreciation for the next several years, but if you want to see the supporting evidence for this statement, you could read our weekly newsletters (see them here), or you can look at this recent market report here. Both the article as well as all the reports are derived from real market data, not merely the biased opinion of a real estate broker.
Another consideration that should be included in your decision making is mortgage interest rates. Interest rates are going to have a significant impact on the market for selling your existing home as well as the competitiveness of the home you would like to buy. If rates go higher, the amount of home you will be able to afford will be less.
Unlike my market report (where I am the subject matter expert for real estate in Tallahassee), my opinions on the mortgage market are far less educated. You should do some background reading on mortgage interest rates and develop your own opinion on what they will do in the future.
My two-cents on interest rates is that they will be moving higher over the next ten years, likely beginning near the end of this year. Why? Because mortgage interest rates have been hovering around historically low levels for many years, and history shows us that interest rates always return to “normal.” Mathematicians might refer to this as a reversion to the mean. There are far more reasons why rates will go up than there are for them staying low or going lower.
If rates do go up, then so too will your cost of buying a home. Even after saving up for a larger down payment, you likely will see a higher payment due to higher mortgage interest rates than you would with a beefier down payment (lower loan amount, but higher interest rates). If you do believe mortgage interest rates are moving higher, you want to lock into a loan as soon as possible so that your next 30 years of payments will be at a lower rate.