Does everyone agree? 20% down?

[herdjohnson]

I know the general rule of thumb is 20% down on the purchase of a home. Does everyone agree? It seems like saving up for that, in addition to closing fees, could take sooo long. By my estimations probably 3-4 more years. With steady employment, a decent salary, and good credit, why 20%? Other than mortgage insurance, I don't really see the downside. Especially now that the housing market is so low.

[JoshuaHeckathorn]

Real estate values are still stagnant or dropping in most parts of the country. You don't want to buy a house and then be underwater 6 months later. That's not a good position to put yourself in. Having at least 20% down gives you a nice cushion to work with in the event our economy continues to struggle and and houses prices drop. Put down more than 20% and you'll generally get even better rates, which is nice. Don't rush into things- home prices are going to stay low for quite awhile.

[MonkeyMama]

Yes - I am a big believer in 20% down.

I watched tons of people buy homes they couldn't afford though they didn't have the patience to save 10% or 20%. My personal conclusion is for the vast majority of the population, if they can't save 20%, they can't afford the house. I just have seen too many people take on HUGE mortgage payments though they couldn't save a penny with their much smaller rent payments. ??? IT never turned out well.

The foreclosures have kind of gone in waves by type, but in my neighborhood at current there are foreclosures and short sales in the $210k range. Most these people paid $250k (& have lived here a DECADE). Why is everyone upside down? Put 0% down. 3% down. Borrwed equity, on and on and on.

That, and we seem to be far from bottom, anyway. Ironically, most people I know buying at the moment are putting 0% or 3% down. Nothing has really changed, and the supply of homes is FAR outstripping demand.

Personally, if I had 20% down and could afford it, I would absolutely buy a house today. BUT, I would not rush to buy a house with less down. I don't see the point to rush into anything.

[bjl584]

My last home, I put down 20% and it was the best decision that I could have made. While some of my friends were busy paying PMI, dealing with multiple ARM loans, and having no money to go out, I was sitting pretty with a low 15 year mortgage.

[MonkeyMama]

P.S. I put 20% down on my first home and 25% down on my current home. Absolutely no regrets there. I have seen 25% poo-pooed, but I would do it again in a heartbeat. (Though I don't think it is necessary for a first home. 20% is the place to start).

[herdjohnson]

Originally Posted by MonkeyMama

Yes - I am a big believer in 20% down.

I watched tons of people buy homes they couldn't afford though they didn't have the patience to save 10% or 20%. My personal conclusion is for the vast majority of the population, if they can't save 20%, they can't afford the house. I just have seen too many people take on HUGE mortgage payments though they couldn't save a penny with their much smaller rent payments. ??? IT never turned out well.

The foreclosures have kind of gone in waves by type, but in my neighborhood at current there are foreclosures and short sales in the $210k range. Most these people paid $250k (& have lived here a DECADE). Why is everyone upside down? Put 0% down. 3% down. Borrwed equity, on and on and on.

That, and we seem to be far from bottom, anyway. Ironically, most people I know buying at the moment are putting 0% or 3% down. Nothing has really changed, and the supply of homes is FAR outstripping demand.

Personally, if I had 20% down and could afford it, I would absolutely buy a house today. BUT, I would not rush to buy a house with less down. I don't see the point to rush into anything.

I understand what you're saying, but my mortgage payment would be about $200 less a month than I'm paying in rent, and that's after figuring in PMI, taxes, etc... Right now I'm saving back $800 a month for the down payment, but it's still going to take forever, and all the while I'm spending too much on housing.

[MonkeyMama]

If you want to speed up the process, I recommend renting something cheaper then. Home ownership is a huge financial commitment, compared to renting.

{My first home was bought in an extreme high cost area. Owning was certainly cheaper than renting. So, we found very low rent situations while we could save up. We felt very uncomfortable jumping in too soon}.

Saving $200/month doesn't sound worthwhile as far as rushing to own. Utilities/maintenance could even that out very easily. If owning would put you in a better situation, maybe you could sway me, but $200/month doesn't convince me, personally.

[riverwed070707]

Originally Posted by herdjohnson

I understand what you're saying, but my mortgage payment would be about $200 less a month than I'm paying in rent, and that's after figuring in PMI, taxes, etc... Right now I'm saving back $800 a month for the down payment, but it's still going to take forever, and all the while I'm spending too much on housing.

That $200 will easily be out the window with utility costs, maintenance and repairs, new furnishings, and all the other unaccounted for expenses that come up with home ownership. Looking at houses is exciting but if you wait until you're really ready you'll be glad you did.

[riverwed070707]

One of my favorite PF blogs did this article a few years ago. Its a little dated, but the principle still stands -- renting isn't throwing your money away any more than buying when you take into consideration how little of your payment goes toward your mortgage in the beginning years. The more you save, the better of an investment you're making.

[tripods68]

20% is the market standard. However, i don't believe in that percentage alone. I believe if you have THE "means" to pay as much as you can, including paying it off completely I'm ALL for it. If the housing market made it a requirement I won't have a problem either which also suggest that millions of Americans will NOT afford to own a home without putting their own shared equity dollars.

[krantcents]

I recommend it and the banks have increased their requirements too. You can find financing that has a lower down payment, but it is generally offered for lower priced homes. Unless you have a very secure job and future, I would stay away from that.

[photo]

Originally Posted by MonkeyMama

My personal conclusion is for the vast majority of the population, if they can't save 20%, they can't afford the house. I just have seen too many people take on HUGE mortgage payments though they couldn't save a penny with their much smaller rent payments. ??? IT never turned out well.

Not only that, but it's too easy to walk away from a house if a person has very little invested in it, which has occurred in droves.

Home ownership is great, but there are so many expenses that people don't take into account when comparing renting to buying. A new furnace could run well over $10,000. Windows, roofing, removing dead trees from your lawn, and so forth can quickly outrun rental expenses quite easily.

[simpletron]

Originally Posted by JoshuaHeckathorn

Real estate values are still stagnant or dropping in most parts of the country. You don't want to buy a house and then be underwater 6 months later. That's not a good position to put yourself in. Having at least 20% down gives you a nice cushion to work with in the event our economy continues to struggle and and houses prices drop. Put down more than 20% and you'll generally get even better rates, which is nice. Don't rush into things- home prices are going to stay low for quite awhile.

Are interest rates going to stay really low for a while, too?

Originally Posted by herdjohnson

I understand what you're saying, but my mortgage payment would be about $200 less a month than I'm paying in rent, and that's after figuring in PMI, taxes, etc... Right now I'm saving back $800 a month for the down payment, but it's still going to take forever, and all the while I'm spending too much on housing.

Apparently no one who has posted owns a rental property, because you're starting off with one of the key aspects, PITI less than comparable rent(assuming what you're buying is equal or better than what you're renting). Others are saying 200 isn't enough for maintenance, increased utilities,... but ignore that some of the PITI payment will go to principal and that the interest/taxes may decrease your taxes(only consider the amount above the standard deduction). Additionally, if you are able to rent the home for more than your cost, then a lot of the risk about having to move somewhere else is remove because you can just become a landlord(warning: this isn't as easy as people think).

Originally Posted by photo

Not only that, but it's too easy to walk away from a house if a person has very little invested in it, which has occurred in droves.

Home ownership is great, but there are so many expenses that people don't take into account when comparing renting to buying. A new furnace could run well over $10,000. Windows, roofing, removing dead trees from your lawn, and so forth can quickly outrun rental expenses quite easily.

A good home inspection can tell you what major expense would be coming up, soon.

While I think it is nice to have 20% down because there are quite a few pros(better rates, no PMI, smaller payments), 20% down is hardly a requirement in my book especially now, because of all the well maintain foreclosures and really low interest rates. If you go ahead and buy now, my advice to think long term what you will want/need out of your home in 5/10/20 years from now and shop around for that. Also go for a 15 year fixed mortgage for financing.

[maat55]

Originally Posted by herdjohnson

I know the general rule of thumb is 20% down on the purchase of a home. Does everyone agree? It seems like saving up for that, in addition to closing fees, could take sooo long. By my estimations probably 3-4 more years. With steady employment, a decent salary, and good credit, why 20%? Other than mortgage insurance, I don't really see the downside. Especially now that the housing market is so low.

One purpose of the 20% down rule, IMO, is to keep an individual from over buying. First it makes the individual learn to save, then it promotes him/her to buy less and move up making the home a better investment. It also provides a more stable overall market with fewer foreclosures.

[JustBill]

You will save your 20% down payment much quicker earning interest (albeit a paltry .8 - 1.0%) than you'll pay down the next 20% when paying the mortgage holder interest (again, albeit incredibly low mtg rates) on the entire balance.

[skruggie]

Originally Posted by photo

Not only that, but it's too easy to walk away from a house if a person has very little invested in it, which has occurred in droves.

Home ownership is great, but there are so many expenses that people don't take into account when comparing renting to buying. A new furnace could run well over $10,000. Windows, roofing, removing dead trees from your lawn, and so forth can quickly outrun rental expenses quite easily.

Thankfully none of these apply to condos (maybe the windows).

I realize condos come with their own set of expenses, but let's keep in mind that not everyone who buys is doing so with a SFH.

[herdjohnson]

Thanks all for the responses. I found out over the weekend that I can actually go month to month at my current apt once my lease is up without paying any sort of premium. That was my only big rush is that I didn't want to re-sign a lease once my current one was up.

However, I still can't guarantee I'll go with 20%. I'm currently saving 800/month toward my down payment. I have about 5000 right now, so looking at a home between 125k-150k, I would still have likely 3.5-4 years of saving before I had enough for the downpayment, closing costs, reserves, etc... I'm worried the market may not be so buyer friendly as it is right now.

[MonkeyMama]

Originally Posted by skruggie

Thankfully none of these apply to condos (maybe the windows).

I realize condos come with their own set of expenses, but let's keep in mind that not everyone who buys is doing so with a SFH.

When I owned a condo, we paid more for HOA fees than we ever probably will to maintain our current home. Condo ownership is in the same league of home ownership. Certainly was my experience. I did feel the condo was lower maintenance, but financially don't feel it is much different to own a SFH. HOA fees are just more fixed and predictable (usually) than home maintenance expenses.

[EconoMutt]

"I'm worried the market may not be so buyer friendly as it is right now.[/quote]

If you think house prices are cheap now, wait until next year. The experts predict another drop in prices.

[emanon1501]

This is my second home and I never put down 20 percent. I put down 0 percent for my first home in 1997. I put down 10 percent for this home in 2007. No regrets. Not everyone can put down 20 percent. Do consider taking out mortgage at 20 years or less. That will bring the balance down much quicker to get rid of PMI sooner.