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    Mortgage Down Payments

    Buying a home has become more and more attractive to me in recent months and I believe that I am going to begin saving to buy a home. I've already done some looking around to get an idea of what is out there (and know it'll still be a couple years before I can move) but wanted to get an idea of down payments. Some lenders say you should have a down payment as little as 3% and as high as 20%. What about you guys, what kind of down payment did you provide for your home?

    #2
    Down payment should be 20%. Just because lenders allow a 3% or 5% down payment doesn't make it a good idea. Lots and lots of people got destroyed in the housing crash because of that. They ended up upside down on their loans because they had little equity and when the home value dropped, they were screwed. Of course, it's possible to end up upside down even with 20% down but it's far less likely. You also avoid PMI when you put down 20%.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

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      #3
      And yes, we did put down 20% when we bought out home.

      Full disclosure - my mother helped some with the down payment. Had she not, we would have just waited until we have the full 20% saved ourselves before buying. We would not have done it without 20% down.
      Steve

      * Despite the high cost of living, it remains very popular.
      * Why should I pay for my daughter's education when she already knows everything?
      * There are no shortcuts to anywhere worth going.

      Comment


        #4
        I've bought 2 houses, one with 25% down, the second (almost 2.5x the cost of the first) with 20% down. As DS said, buying a house with almost nothing down (like 3-5%) opens you up to alot of risk in the event your home value goes down even just the slightest bit... All of a sudden, you're underwater. Plus, you're stuck with PMI payments, which will raise your mortgage payments even more with absolutely zero benefit to you.

        Always best to stick with a 20%+ down payment. You'll have sufficient equity to ride out most downturns, you'll have fewer fees at closing (maybe even a lower interest rate), you won't have the added expense of PMI, and your monthly payment will be lower by virtue of the fact that you're borrowing less.
        "Praestantia per minutus" ... "Acta non verba"

        Comment


          #5
          I personally wouldn't buy with anything less than 20% down (which is what we did). The loan terms are much more favorable if you put at least 20% down. In addition to the other reasons mentioned.

          Comment


            #6
            Another question for you all - how soon did you move, if ever? I've been told that I should look for a small starter home. However, if I'm going to be there for a long time I'll need some room to grow into. I love the area and don't plan on moving in that sense but wouldn't want to invest in something that may need to be expanded (or possibly completely move into a larger home) in a few years.

            What do you guys think? Did you get a starter home or did you move when you needed to?

            Comment


              #7
              Originally posted by amastewa93 View Post
              Another question for you all - how soon did you move, if ever? I've been told that I should look for a small starter home. However, if I'm going to be there for a long time I'll need some room to grow into. I love the area and don't plan on moving in that sense but wouldn't want to invest in something that may need to be expanded (or possibly completely move into a larger home) in a few years.

              What do you guys think? Did you get a starter home or did you move when you needed to?
              I think the whole concept of a "starter home" was invented by the real estate industry. Years ago, people bought a home and lived their for their lifetime. In fact, some homes have been in the same family for 2 or 3 generations. My parents bought their one and only house in 1955 after they got married. My father died in 1992. My mom stayed there until about 2008 when the house became too much for her to manage and the neighborhood was going downhill and she moved to a senior apartment building.

              My wife and I bought our one and only house in 1994, 2 years after we got married. We've been there ever since. We do hope to move in a few years to relocate to Florida. If not for that, we would stay there until we couldn't handle it anymore.
              Steve

              * Despite the high cost of living, it remains very popular.
              * Why should I pay for my daughter's education when she already knows everything?
              * There are no shortcuts to anywhere worth going.

              Comment


                #8
                I'd do the 20% down.

                I was looking, and where you live you can get a really nice house in the $125K to $150K range. Are you planning on staying in that area? If so, you'll need around $30K for a down payment. Plus, you'll want a few months worth of expenses saved up.
                Brian

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                  #9
                  I think the whole concept of a "starter home" was invented by the real estate industry.
                  That totally makes sense haha... I never thought the idea of buying a smaller home to start out made sense. Purchasing a home is an investment and you should be able to grow with it.

                  I was looking, and where you live you can get a really nice house in the $125K to $150K range. Are you planning on staying in that area? If so, you'll need around $30K for a down payment. Plus, you'll want a few months worth of expenses saved up.
                  Yes - I am planning on staying in the area. I think the city has a median home cost of $185K or so but there are some GREAT finds. I'll be excited to get out there looking (and really be looking) once I have the savings stacked up.

                  Comment


                    #10
                    For us, we had a lack of affordable housing. We moved ASAP into a condo because we NEVER would afford a house without starting with a starter home and building up equity. We also could not afford rents. So it was imperative for us to get into a home ASAP. We would not have bought with less than 20% down, that said. I'd rather live with roommates than buy a home I can't afford (we did the roommate thing while saving up the down payment). That said, knowing the lack of affordability, we bought as much as we reasonably could. We bought a 3-bedroom condo, though 2-bedrooms would have been more than ample for us. We knew this would most likely be where we would raise our kids. If we could some day buy more, GREAT, but it was never a given.

                    We then made the polar opposite move and moved to somewhere (comparatively) very affordable. In that case, we just bought what we wanted for the long-term. Which was a 5-bedroom house to raise kids in (though we didn't have kids yet).

                    I am very happy with both of these housing decisions. Both purchases considered the more long-term.

                    In a more middle of the road situation, we would have gone more middle of the road. We just happened to do the two opposite extremes. I think overall we weren't a fan of moving too much. But when we had absolutely no other choice we were fine with having to do the starter home thing. & even so, we could have bought a 1 or 2-bedroom with plans to move later, but didn't want to move every time we could afford one more room, know what I mean? There was some cost/benefit analysis taken into account. It's just what made the most sense given the situation at the time. It would have been impossible for us to out-save the home appreciation and we had to get into something that was gaining equity. In other markets I am sure it's more sensible to just wait and save up for what you want (or need).
                    Last edited by MonkeyMama; 09-25-2017, 08:30 AM.

                    Comment


                      #11
                      Originally posted by MonkeyMama View Post
                      We also could not afford rents.
                      Tell me about it. I pay $1,217 a month in rent, which is another HUGE reason I want to buy a home.
                      We bought a 3-bedroom condo, though 2-bedrooms would have been more than ample for us.
                      This was going to be my first move until I discovered some of the condo prices here. (I live in Charlotte, NC)... It seemed like condos and homes weren't too far apart in price and, in some cases, more expensive.

                      It sounds like you all made the perfect decision for yourselves though... I can see how a starter home could prove to be beneficial in that situation.

                      Comment


                        #12
                        Putting 20% down doesn't protect you from a real estate market crash in any way:

                        If you buy a $200K home and put down $40K, and the market crashes and the home is now only worth $160K, you've still "lost" the $40K if you have to sell. You just funded the loss on the front end rather than the rear end. If that makes you feel better, by all means put down 20%, but that's a chunk of cash you could be using for other investments. Either way, you're out the $40K in the "market crash" scenario.

                        The biggest reason to put down 20% is to escape PMI, although if the terms are right and the buy is right, I'd still buy a house if I didn't have but 3% and pay the PMI.

                        Example:

                        Let's say you find a motivated seller who needs to sell their house because they've been transferred. It is normally a $250K house, but you offer $220K and they take it so that they can get out and get gone. You've only got $8,000 in your pocket to do the deal, but you're buying a $250K house for $220K.

                        You put down 3%, financing the remaining $214K-ish. You've made a great deal, even though your PMI is $150 a month. According to Freddie Mac, you've got to let the loan "season" for 2 years before you can get the house re-appraised and potentially drop the PMI.

                        Fast forward two years - you get the house re-appraised. It's now worth $265K (3% annual growth for the 1st two years). Now you've got your 20% equity to take to the bank and have your PMI removed.

                        So you now enjoy around $55K equity in your home, and it cost you an extra $3600 in PMI payments to make the deal happen. And it's likely that PMI was a tax deduction. You did splendid!
                        Last edited by TexasHusker; 09-25-2017, 08:47 AM.
                        How can you have any pudding if you don't eat your meat?

                        Comment


                          #13
                          Originally posted by TexasHusker View Post
                          Putting 20% down doesn't protect you from a real estate market crash in any way:
                          Let's say you buy a $200,000 house and put down 3% or $6,000 because that's all you've got. The market crashes and the home's value drops to $160,000. Because the economy sucks, you get laid off. You can't afford the home anymore but you can't sell it either because you're upside down on the loan so you're screwed. The bank forecloses and your credit is trashed.

                          Had you put down 40K, you could sell for 160K and walk away even (minus closing costs). You'd be out 40K but at least your credit would be intact and you could start over.

                          So I'd say that 20% down did protect you quite a bit.
                          Steve

                          * Despite the high cost of living, it remains very popular.
                          * Why should I pay for my daughter's education when she already knows everything?
                          * There are no shortcuts to anywhere worth going.

                          Comment


                            #14
                            Originally posted by disneysteve View Post
                            Let's say you buy a $200,000 house and put down 3% or $6,000 because that's all you've got. The market crashes and the home's value drops to $160,000. Because the economy sucks, you get laid off. You can't afford the home anymore but you can't sell it either because you're upside down on the loan so you're screwed. The bank forecloses and your credit is trashed.

                            Had you put down 40K, you could sell for 160K and walk away even (minus closing costs). You'd be out 40K but at least your credit would be intact and you could start over.

                            So I'd say that 20% down did protect you quite a bit.
                            It's all a matter of risk tolerance. You're paying upfront protection against a market crash. You might look at those extra 14 points of down payment as an insurance policy.

                            You and I approach debt and leverage differently.
                            How can you have any pudding if you don't eat your meat?

                            Comment


                              #15
                              Originally posted by TexasHusker View Post
                              Putting 20% down doesn't protect you from a real estate market crash in any way:
                              Originally posted by TexasHusker View Post
                              It's all a matter of risk tolerance. You're paying upfront protection against a market crash.
                              Maybe I'm just misinterpreting your use of the word protection. First you say a larger down payment doesn't protect you. Then you say that larger down payment is protection. Which is it?

                              If you are buying the 200K house and you HAVE the money to make a 20% down payment but choose not to use it, that's entirely different than if you buy the 200K house and only have 6K to put down. Your risk in those two situations is very different.
                              Steve

                              * Despite the high cost of living, it remains very popular.
                              * Why should I pay for my daughter's education when she already knows everything?
                              * There are no shortcuts to anywhere worth going.

                              Comment

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