Down Payment

[puppylove64]

How did you decide how much down payment to put down on your home? We are buying first the selling ours the next week. We are originally putting 5% down to purchase, but a week later will have much more funds available. We can put up to 20% down. Putting the additional down up to 20% would change the monthly payment by about $300 + $100 pmi. Our interest rate is 2.625. Since it is so low, I wonder if it isn’t better to keep some of that cash liquid and probably make more on it in low risk investments.

So help, what time of things should I be considering and what made you decide how much to put down on your home?

[tcu2003]

What’s your risk factor? That ultimately decides what you do. Or how savvy of an investor you think you are. DH and I are not savvy, so we put down everything we could into our house, and then paid it off fairly quickly as our cash reserves kept building. Now that we’ve done that, it’s forced us into figuring out other options with our cash, which isn’t a bad thing.

[mccallister84]

I would put down enough to eliminate the need for PMI.

[Cappy]

We were able to negotiate a concurrent closing by writing the title company requirement into our offer. That allowed us to use the proceeds from our sale into the new house. Otherwise we were putting the 20% down to avoid that PMI. Our lender worked with us to go over all the options (including buying before selling then recasting the loan).

[mich1]

Have you looked to see what the interest rate would be if you added more? My sister just bought a house (in July), intending on putting down a 20% down payment to avoid PMI. However, when she started getting information from her mortgage lender, by putting 10% down rather than 20%, she got a 0.5% lower mortgage rate. I don't know if this was just an idiosyncrasy in her state, but when she ran the math it was cheaper for her to pay PMI and keep more cash than it was to put more money down with regards to her mortgage payment. Her intention is to add extra to the mortgage payment and get rid of the PMI ASAP, but she'd still have the lower interest rate.

[sandandsea]

I would put down at least enough to prevent pmi. Regardless of interest rate, our goal is to pay off the mortgage.

For our first house we put down 3%. We had enough for 5% but we got a Better loan doing 3% than 5 so we saved the difference. This was pre 2008 so things are different now. We also were new to our careers then and had significant income potential upside at that point and could take more risk.

For our second home we put down over 35%.

[wildrice]

We did 5% on our current house, because we're first time homebuyers and 20% was not a reasonable goal. I think we pay around $50 in PMI, so it was worth it to me.

You are paying $1200 a year in PMI, so it is tempting to avoid that. But how much is 20%? I am not sure I'd put down an additional 50k+ to avoid paying an extra $100 a month. I guess it depends on what else you could do with the down payment money. What are your plans for it if you don't use it for your down payment? If you plan to invest it, and it's a significant amount, you could likely get more than a $100 a month return on your investment so that might make more sense.

I guess it also depends on your goals. Do you want to pay off your mortgage sooner? Obviously, a larger down payment will help that goal. But if that's not a priority and there are other financial goals you are more interested in, perhaps it makes more sense to put the money toward those.

[flygirl]

I think in most cases, you might get a better rate if you put more down, especially the 20% threshold, so I would really check the scenarios for all of the cases and see which is the most financially beneficial.

[macmars45]

As first time home buyers in 2015 H and I put 5% down. We didn't have the financial means for 20%. We got rid of the PMI about a year ago and sold last month.
Currently we're second time home buyers with the money from the sale of our first home so we are able to put down 20% this time.

[carrotsmakemefat]

The market here is so hot. Putting more down shows you’re more than qualified and may help you win the house.
Avoid PMI if you can. Otherwise if that’s not a factor I’d keep the cash on hand and not sink it all into a house

[puppylove64]

The pmi is only $100 a month. We decided to keep the money in the bank. With the uncertainty of the economy, I’d rather not loose $50-75k if we got foreclosed on.

[dancingirl21]

On our first home, we put down 5% in 2011. The market was still down so we bought low. We sold in 2017 when the market was high and made a huge amount of money. We were easily able to put down 20% on our second house.

Considerations: avoiding PMI is nice if you can. You can also manage your own taxes and homeowners insurance when you put 20% down and not have to escrow (generally). We wanted this option the second time around. But, I would not put everything I had into a down payment. So if you can't afford the 20%, do less and plan to pay off more early if you can to get rid of PMI.

[janegold]

We were in the same position when we bought our new house in Jan - closed on our new house a few weeks before the sale of our condo closed. We really wanted to put down 20% but could only put down 10% cash until our condo sold; we took out a HELOC to fund the other 10% until we sold our condo and then immediately paid the HELOC off in full. Unfortunately it meant that we had to take an interest rate that was slightly higher (0.125% more) but I’m glad we how have the 20% down.

[janegold]

We were in the same position when we bought our new house in Jan - closed on our new house a few weeks before the sale of our condo closed. We really wanted to put down 20% but could only put down 10% cash until our condo sold; we took out a HELOC to fund the other 10% until we sold our condo and then immediately paid the HELOC off in full. Unfortunately it meant that we had to take an interest rate that was slightly higher (0.125% more) but I’m glad we how have the 20% down.

[carmenere]

It sounds like you are under contract on your house already, and just won’t have the extra money in time for closing, is that right? If so, you can ask your lender if you can make a payment and recast the loan.

[Susie]

Aug 24, 2020 13:17:32 GMT -5 mccallister84 said:

I would put down enough to eliminate the need for PMI.

+1  

Money spent on PMI is money wasted. 

[namasteak]

First home - 20%
Second home - 15%