Minimum down payments on a house or a car...

[Skooby]

What percentage should be the minimum you should put down on either one? What percentage is suggested?

Is there some type of un-written rule that says if you can't put a certain percentage down, then maybe you are living beyond your means?

[simpleyme]

ideally you should just pay for a car , next best would be to have it paid off in 18 months , worst case paid off in 36 months

On a house you would want to put enough down to avoid PMI , and pay it off n 15 years,next best 20 years
just my opinions

[MonkeyMama]

I pretty much agree. I personally think 3 years to pay off a car is pretty generous.

It is a lot less how much you put down but I think the above parameters give you a better idea if you can truly afford these things. The more you have to put down, the faster you should be able to pay off as a whole though.

I think historically 20% has been the rule of thumb for a home & I really don't know as far as cars since my personal rule has always been pay cash or have the money to pay off within a year. I really have no idea what is recommended. But I also think most people pay too much for cars so probably why I never paid attention.

[autoxer]

I made a small downpayment & financed a car for 5 years, but that was way too long. After three years, I got tired of the payments & sold the car. Now I have two inexpensive cars with no payments and it feels much better.

Now I'm saving up to buy a house & my goal is a 20% downpayment. There are a lot of low downpayment mortgage options, but I don't think people truly understand their costs. They only look at the monthly payment instead of the total cost over many years. Putting 20% down will help me save thousands in PMI (mortgage insurance) payments.

[disneysteve]

I agree with the others. 20% for a house. No set % for a car, but if you must finance, do so for no longer than 3 years. And once that car is paid off, keep making those payments to your savings account so that next time around you can pay cash.

[puck36]

I agree for a car it should be paid 100% but if you can't put 100% down then have it paid off in 18-36 months. On the house you would have to put down 20% to avoid PMI otherwise it depends on the type of loan you get. Some loans say a minimum of 3% and others you don't have to put anything down.

I just got a loan from my bank (1st time home owners) where I don't have to put anything down, but I will to lower the payment.

[poundwise]

I'm not interested in ever having a car loan again. If I do, or rather my advice to others who do, is to pay enough down that you have a relatively low payment and are still finished paying the car in 24 to 36 months.

The ideal thing for a house is to pay 20% down. Not only do you avoid PMI that way but you also have instant equity and protection should the market turn south and you need to sell due to a job change or some other reason. Still, 20% can be tough in some markets, so I say 10% minimum. If you put down 10%, for instance, you can do a 80-10-10, where you borrow 80% on a first mortgage, 10% on a second, and pay 10% down. This is not ideal but it much better than 100% financing or an 80-20 arrangement (which is also, of course, 100% financing.)

[tinapbeana]

Regarding the house, I want to pipe in that it depends on both the house and the loan. The loan we got did not require PMI with less than 20% down. We also bought at 20% or so below appraised value. As a result, when we have the house re-appraised in August so we can refinance with our local credit union, we should have 25-30% equity already in the house (our market is still pretty upwardly mobile).

[autoxer]

Originally Posted by tinapbeana

Regarding the house, I want to pipe in that it depends on both the house and the loan. The loan we got did not require PMI with less than 20% down. We also bought at 20% or so below appraised value. As a result, when we have the house re-appraised in August so we can refinance with our local credit union, we should have 25-30% equity already in the house (our market is still pretty upwardly mobile).

Some lenders will accept a higher interest rate in lieu of PMI, but they still get the money for it. And then the lender pays for the mortgage insurance, instead of the borrower.

Why are you refinancing?

[tinapbeana]

Originally Posted by autoxer

Some lenders will accept a higher interest rate in lieu of PMI, but they still get the money for it. And then the lender pays for the mortgage insurance, instead of the borrower.

Why are you refinancing?

True, there's a higher interest rate, but if one is prepaying mortgage payments and/or refinancing, it can easily work to one's advantage

We're refi-ing b/c of that higher interest rate. Specifically, my local credit union can do a refi to 5-5.5% with only a tiny filing fee. And maybe it's just me, but I'd rather keep my money local if possible.

We're waiting a year from our purchase so we can refi under consideration of the appraisal value rather than our purchase price (that's the way the credit union works). Other than the interest rate motivation, we intend to pull about 10k out in equity to upgrade the central heat/air system and do a few other repairs and upgrades around the home. That dollar amount will still leave us with equity in the house, and with the lower interest rate our monthly payments will still be within dollars of what they are now even though we will be paying on a larger note.

We bought this house as a buy and hold starter home in a gentrified neighborhood. My next door neighbor is 94 and has lived in her house since her husband built it in 1936... The tax accessor's value on our house went up 40% from 2004 to 2007, and the neighborhood is one of the few so close to downtown that haven't been 'revitalized' yet. Three houses around us sold within the past 6 months to couples our age, so apparently my gamble might just be paying off in a couple of years.

[anonymous_saver]

Well of course the 20% down payment would be great for a home.

Personally, my goal is at THE VERY MINIMUM to have 5% of a down payment with a 3 month emergency fund before I even start to think of buying a home. I am fine with paying PMI for awhile, but will pay agressively for the beginning of the loan until I hit that 20% equity #.

[jIM_Ohio]

Originally Posted by Skooby

What percentage should be the minimum you should put down on either one? What percentage is suggested?

Is there some type of un-written rule that says if you can't put a certain percentage down, then maybe you are living beyond your means?

For a house, I have put less than 20% down the two times I have bought (which goes against conventional wisdom). My suggestion is put as much down as possible. Then think about two things

1) paying it off (to be debt free)
or
2) investing the money you would use to pay it off and have a higher net worth 30 years later.

For a car, my suggestion is cash, but if you have to finance, each car should be financed for one year less than the last car you bought.

If car 1 was financed for 60 months
finance car 2 for no more than 48 months...
then car 3 is no more than 36
car 4 no more than 24
if you cannot pay cash for car 5, then 12 months
if you cannot pay cash for car 6, rethink how you are spending $$

[fairy74]

About the car, this is not traditional wisdom but my firm belief is that if you can't afford it in cash, you can't afford it period

Regarding a home, the rule I always learned was a minimum of 20% down in cash or it's out of your league

I know that there are a lot of loan programs out there that let you play fast and loose with the down payment (or lack thereof) but just because you can do it that way, doesn't mean you should

[Ima saver]

I agree with the 20% on the house and a 15 year mortgage. I always trade in my car and use that as the down payment.

[poundwise]

Originally Posted by Ima saver

I always trade in my car and use that as the down payment.

Ima! That's the worst thing to do!!!

When you trade in your car you get the least amount for it. If you compare KBB pricing between trade-in value and private party value its easy to see that you'll almost always do much better if you sell your car to an individual. Most dealers either (a) don't give you even the full trade-in value or (b) make it look like they've given you a better deal on the trade-in because they are making a nice profit on the sale; meaning, you got a bad deal.

[disneysteve]

Originally Posted by poundwise

When you trade in your car you get the least amount for it. If you compare KBB pricing between trade-in value and private party value its easy to see that you'll almost always do much better if you sell your car to an individual.

While I'm well aware of that, I also trade in my cars (okay, I've only actually done this once in my life). I don't want the hassle of selling, having strangers come to my house to see the car, go on test drives with people I don't know, worry about their payment clearing, etc. There are far too many crazies out there. I'm willing to sacrifice the money in return for the safety and convenience of trading in at the dealer.

That said, I don't tell the dealer about the trade until after I've negotiated the price. Am I getting the best deal that way? No, I'm sure I'm not. But I'm much more comfortable doing it that way.