61% of Americans say they would jointly purchase a home with a friend. you are?
With home prices falling to their lowest level in nearly 40 years, Americans are getting creative with their home purchases. A recent survey conducted by JW Surety Bonds found that 13% of Americans purchased a home with a partner who was not in a romantic relationship. And more people can follow suit. The survey found that 61% of respondents would buy a home with a friend.
Here’s why Americans are looking for less traditional paths to homeownership and what you can do to potentially lower your mortgage payment if you’re considering buying a home.
Joint purchasing can help reduce mortgage costs.
The average home sale price at the end of 2023 was $492,300, up nearly 22% over the past three years. That surge alone put a strain on the finances of potential homebuyers, and high mortgage rates made the situation even worse.
For example, the average mortgage interest rate in 2022 was 5.4%, but now it is 6.5%. To put that increase in perspective, a $350,000 home with a 20% down payment and a 5.4% interest rate would cost $1,572 per month (principal and interest). However, at a 6.5% interest rate, the same home would cost $1,771 per month, or $199 more.
This is why Americans want to split their mortgage payments. Sharing the cost of a home has been one of the main reasons people consider buying a home with a friend, along with being able to afford a better home.
Of course, buying a home with a friend may not be possible, and not everyone wants to share home ownership. In fact, more than three-quarters of survey respondents said their biggest concern when it comes to shared ownership is interpersonal conflict. Fortunately, there are several ways to make home ownership more affordable.
More: Find out how to choose the best mortgage lender.
How to make mortgages more affordable
If you’re looking for a home right now and can’t wait for a potential interest rate cut later this year, there are ways to lower your mortgage payment.
1. Use the down payment as a gift
You may be surprised to learn that 38% of buyers use an inheritance or receive a financial gift from friends or family to use as a down payment. Be aware that some loans have restrictions on how much money you can receive to ensure it is a gift and not a loan.
A financial gift can go a long way toward lowering your mortgage payment. If you buy a $350,000 home with a 6.5% interest rate and put 10% down, your combined principal, interest, and private mortgage insurance (PMI) payments will be $2,196 per month.
However, with a 20% down payment, you won’t have to pay PMI and your mortgage balance will be lower, resulting in a payment of $1,771 and a savings of $425 per month. Plus, lenders may offer better interest rates with a 20% down payment.
2. Improve your credit score
A higher credit score can help you get better mortgage rates, which can help lower your mortgage payment. Since your payment history accounts for 35% of your overall score, the most effective way to improve your score is to pay your bills on time.
Late payments can stay on your credit report for up to seven years, and one late payment can lower your score by up to 180 points. The good news is that if you have late payments on your report, the impact on your score will lessen over time.
Paying off debt can also do wonders for your score. The amount you owe your lender accounts for 30% of your total score. Typically, you should use less than 30% of your available credit. For example, if your credit card limit is $15,000, your balance must be less than $4,500.
3. Shop for the best price
The bank you use for your personal checking and savings accounts may not be the best place to get a mortgage. As with almost anything you buy, if you want a good price, you’ll have to shop around. Not all mortgage lenders have the same criteria for borrowers, so comparison shopping can often help you find a better rate.
For example, if you find a bank that will lend you $350,000 to buy a home, charges a 6.5% interest rate, and requires 5% down, you will pay $2,307 per month in principal and interest. But if a competing lender offers the same 6% interest rate, you’ll pay $109 less per month.
Buying a home is difficult now. If you’re considering going solo or jointly purchasing with a friend, make as big a down payment as possible to boost your score and shop around for the best price before applying for a mortgage.
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