Is a Low Down Payment Ever OK?

hoffse

Xstatic3333 said:

I think of it as a risky investment. Very risky. I do want to try to be smart about it. I like the idea of buying a fixer upper or foreclosure to get the best return on my investment. At the same time, I know the real estate market's a bit crazy. I guess I think of it as a *small* component of our retirement plan, but don't worry, I won't sacrifice my Roth IRA to it, even for a few months

Yeah I think this is the right approach - foreclosures tend to be pretty good investments, particularly if you're willing to stay in them for awhile.

That's the other reason we want to buy a "10-15 year house."  That's enough time that our property really should appreciate so long as we aren't buying at the very peak of a bubble.  We are definitely in a bit of a bubble again, but I've actually noticed prices dropping in our area.  We have also seen a wave of foreclosures recently, which seem to be depressing prices.

vlagrl29

Xstatic3333 said:

Yeah the more I thought about the retirement think you're right, that would be dumb. I let Zillow go to my head a little!

Yeah, I forgot to mention we got a great one time rollover from a past pension which we put into my IRA, that's why I didn't mind stopping my contributions for a bit.  what is Zillow?

Xstatic3333

vlagrl29 said:

Xstatic3333 said:

Yeah the more I thought about the retirement think you're right, that would be dumb. I let Zillow go to my head a little!

Yeah, I forgot to mention we got a great one time rollover from a past pension which we put into my IRA, that's why I didn't mind stopping my contributions for a bit.  what is Zillow?

Zillow is a super addictive real estate browsing app. You can save your search parameters for various towns, and it gives you a notification when your saved searches have an update. I have heard, however, that it tends to show houses that have long since sold.

hoffse

Xstatic3333 said:

Xstatic3333 said:

Yeah the more I thought about the retirement think you're right, that would be dumb. I let Zillow go to my head a little!

Yeah, I forgot to mention we got a great one time rollover from a past pension which we put into my IRA, that's why I didn't mind stopping my contributions for a bit.  what is Zillow?

Zillow is a super addictive real estate browsing app. You can save your search parameters for various towns, and it gives you a notification when your saved searches have an update. I have heard, however, that it tends to show houses that have long since sold.

****************

Try Megagents - they do a pretty good job of keeping current.  I often get updates about houses through there before my realtor does

jtmh2012

Xstatic3333 said:

That's good to hear! We pay them off in full too. It's a good feeling. I'm actually so paranoid I pay off my purchases weekly, except for work reimbursables. My concern with the CCs is that H doesn't have that many of them. This is overall a good thing, but when the balance on our shared card is at it's monthly max (usually $400 in a typical month), it makes his utilization look a little high.

In our case, that's where we're different.  We have three cards.  One doesn't get used and has a $22k limit on it.  Another sees maybe $200-300/month and has a $9k limit.  The third sees anywhere from $1500 to $3k+/month, but has a limit of $15k on it.

jtmh2012

emily1004 said:

I did say it was just my opinion, but not everyone should be a homeowner. I'm 33 and buying my first home. We saved for several years. A home is not just a mortgage payment. It's taxes, insurance and upkeep. 

It's just what I see every day in the office. People who bit off more than they could chew. It's sad, but in most cases, a little proper planning and responsibility, and it all could of be avoided.

This exactly!  Not saying you have to stick to the 20% rule, but owning a home is more than just getting past closing costs and your monthly mortgage payment.  Forgetting this is how people get into trouble.

I bought my first house without having 20% down, however, I had enough money put away that if something happened, there was money to fix things that can and did go wrong.  I eneded up having to redo the roof ($3900), a hot water heater ($1000), new windows ($3000), a new HVAC system ($6400) over the course of 10 yrs.

jtmh2012

hoffse said:

Houses are absolutely investments - and you can make a lot of money in real estate if you do it right and are willing to ride the market fluctuations until the value of your property has increased.  I know plenty of people who buy and sell every 10 years or so, and they usually make money on their houses.  I know a few have made a LOT of money on their houses because they are good at picking areas that are about to get hot and buying before it becomes enormously popular.

  

We made about $65k off our first house.  Sold it, put the money into a bigger house.  Fully expect this house to appreciate as it was one of those houses that should have sold for a lot more given the neighborhood.  We also expect to stay here for the next 10-20 yrs.

You can make money in real estate, but it takes planning and patience.

jtmh2012

Xstatic3333 said:

Yeah, I forgot to mention we got a great one time rollover from a past pension which we put into my IRA, that's why I didn't mind stopping my contributions for a bit.  what is Zillow

Even with the rollover, I wouldn't short yourself on retirement.  The rollover should be treated as an extra boost, not an excuse to slack off.  It's borrowing from your future to pay for your present and a costly way at that if you look at compounding potential.

blondie42107

Is it ever okay to have a super low down payment to buy a house?  I think it really depends on your finances.  H and I reviewed several options when we purchased our house.  First this is before the market and foreclosure rates got nasty.  

We essentially had very little money bring to this purchase.  Conventional loan was a way better option than a FHA loan, for us.  We refinanced our 30 year to a 15 year.  I'm sure we were lucky in a sense because we've seen and heard horror stories about people that had similar purchasing experiences as us.

SmrBrd2012

hoffse said:

Xstatic3333 said:

vlagrl29 said:

Xstatic3333 said:

Yeah the more I thought about the retirement think you're right, that would be dumb. I let Zillow go to my head a little!

Yeah, I forgot to mention we got a great one time rollover from a past pension which we put into my IRA, that's why I didn't mind stopping my contributions for a bit.  what is Zillow?

Zillow is a super addictive real estate browsing app. You can save your search parameters for various towns, and it gives you a notification when your saved searches have an update. I have heard, however, that it tends to show houses that have long since sold.

****************

Try Megagents - they do a pretty good job of keeping current.  I often get updates about houses through there before my realtor does

Redfin is also really good. I used it religiously and found the condo we're hopefully going to buy on it! It updates very frequently and is way more accurate than zillow.

brij2006

One thing that I also want to add...

If you're looking at buying a foreclosure that needs some updating, make sure you have a good chunk in your monthly budget for upkeep along with updates.  Our mortgage payment is only 14% of our take home pay.  So our house is easily affordable and a lot cheaper than a rent payment.  But we easily spend another 15% per month on updates for the house.  Along with our 20% down payment that we ended up putting into remodeling the home.

So honestly, I would wait till you had a 20% down payment. Yes, the market is great right now.  But it has been for the last 3 years.  The 20% equity in the home will give you so much more breathing room. 

We can honestly sleep well at night knowing that we only have financed 50% of what our house is worth right now, because we had the 20% to put into it and have made updates to it along the way. 

There's just something about not having to worry at all about what your property is worth or whether or not you have to worry about being under water on your mortgage if you need to sell it.

vlagrl29

My parents refinance last year sometime and got their interest rate down to 2.5%.  So even if you bought a house later, the market probably will crash again and you can refinance.  

juliebeannn

We were able to lock in a rate or 3.68% through a conventional mortgage program for firefighters in our state.  In our area (NYC metro), putting 20% can easily be close to $100k and not realistic for first time home buyers. 

So, after a lot of number crunching, we're under contract on a house and we're totally ok with putting only 5% down -- this will make our monthly payment (PITI) 30% of our monthly take home.  After closing, we'll still have an emergency fund remaining, funds to do some minor renovations right off the bat and still 15-20% of take home going into savings every month.  We are also debt free and have stable incomes. 

All in all, it really all comes down to what your family is comfortable with, financially.  Good luck!

ta78

I love redfin. We are still about a year out from selling our house/buying next and I check it everyday.

blondie42107

ta78 said:

I love redfin. We are still about a year out from selling our house/buying next and I check it everyday.

H and I are always checking listings in our desired area.  It's been interesting to see what houses have stayed on the market long-term, quick sales, houses that are listed then removed and relisted 3-6 months later.  Really gives you a good idea of the market, etc, in your area.

JoanE2012

hoffse said:

Well you know me...  5% down doesn't particularly scare me, so long as the mortgage is still affordable.

We're going to be putting down 20%, but that's primarily to reduce the mortgage.  We're looking at houses that are not at all "starter homes" by most people's definitions because we'd like to stay for at least 10 years, through partnership, and potentially through two kids getting old enough to need separate rooms (If they are of the opposite sex) before we move.  So we need more house than the teeny ones, and that means we need to lower our monthly obligation on the mortgage to make it reasonable while we still have our student loans.  We could spend a lot less if we were willing to commute, but our time is really valuable to us (both literally and figuratively), so we want to live in-town.  That comes with a price tag around here.

I really don't think rates are going to be up to the 6.5% range for awhile.  It depends on your lender though.  We've about settled on doing the 5/5 ARM through PenFed, which is currently starting at 2.75% and won't go up past 4.75% in the next 10 years (according to the terms of the ARM).  4.75% is still significantly less than 6.5%, and that's the 10-year outlook for the mortgage we're considering.  Obviously the starting rate could go up a percentage point in the next year, but that's a pretty big jump.  And when interest rates go up, house prices tend to go down a bit.

Our generation has really gotten spoiled by the low interest rate mortgage.  When my parents bought their first house in the early 80s, interest rates were 18%.  They were able to assume a mortgage at 8%, which was a hell of a deal at the time.  Today people would look askance at an 8% mortgage.  But that's really average when you look at mortgage rates historically.

I think we're all going to have a conniption when we're looking to buy our second homes and interest rates have finally returned to normal.

So I don't know.  Some people are super, crazy "you must have 20% down."  I definitely see that side to it, and we're choosing to do it so that we can buy a pretty expensive first house without compromising our travel or student loan prepayment plans.  But if 5% down would save you money over your rent, and it would buy you a house you love without compromising your other goals?  I see no reason to delay things.

haha, so true!  We bought last summer and got a rate of 3.25.  We're here for the long haul.  We can't imagine losing this rate and getting something higher!  Fortunately it's not a starter house and we can see ourselves here for a long time.

OP - We put 20% down to avoid PMI.  I do hear with FHA loans that PMI is for the life of the loan now.  I wouldn't want to do that.

Xstatic3333

Update: I think we've made our decision to start looking in September. We have 5% plus closing costs for the top of our price range NOW, and we both have good credit, so our hope is that by September we won't need to do FHA. We also have our e-fund and already own furniture and most major appliances, which is a huge help.

Thanks all for your advice and perspectives! No retirement funds will be harmed in the purchase if this house

A related vent-sat down to do future budget with a kid the other day, since that will affect what our payments need to stay under, and couldn't find a single daycare in our area that puts prices online. Why is this some sort of trade secret? I don't want to be the crazy lady calling daycares and saying "We may try for a kid in two years and I'm trying to budget. What is the weekly cost of your infant room?"

brij2006

Xstatic3333 said:

 A related vent-sat down to do future budget with a kid the other day, since that will affect what our payments need to stay under, and couldn't find a single daycare in our area that puts prices online. Why is this some sort of trade secret? I don't want to be the crazy lady calling daycares and saying "We may try for a kid in two years and I'm trying to budget. What is the weekly cost of your infant room?"

Haha, just call them and ask for their rates for an infant.  I did this right after we got married, because we wanted to figure out what we needed to budget when we started TTC.  They won't think you're crazy.  I called to 3 different places and asked for their infant rate since it was more than the cost of a toddler. Then we plugged in the most expensive one to our budget, just in case.

Xstatic3333

brij2006 said:

Xstatic3333 said:

 A related vent-sat down to do future budget with a kid the other day, since that will affect what our payments need to stay under, and couldn't find a single daycare in our area that puts prices online. Why is this some sort of trade secret? I don't want to be the crazy lady calling daycares and saying "We may try for a kid in two years and I'm trying to budget. What is the weekly cost of your infant room?"

Haha, just call them and ask for their rates for an infant.  I did this right after we got married, because we wanted to figure out what we needed to budget when we started TTC.  They won't think you're crazy.  I called to 3 different places and asked for their infant rate since it was more than the cost of a toddler. Then we plugged in the most expensive one to our budget, just in case.

Thanks @brij2006! I knew you guys wouldn't think I was nuts

vlagrl29

Xstatic3333 said:

Xstatic3333 said:

 A related vent-sat down to do future budget with a kid the other day, since that will affect what our payments need to stay under, and couldn't find a single daycare in our area that puts prices online. Why is this some sort of trade secret? I don't want to be the crazy lady calling daycares and saying "We may try for a kid in two years and I'm trying to budget. What is the weekly cost of your infant room?"

Haha, just call them and ask for their rates for an infant.  I did this right after we got married, because we wanted to figure out what we needed to budget when we started TTC.  They won't think you're crazy.  I called to 3 different places and asked for their infant rate since it was more than the cost of a toddler. Then we plugged in the most expensive one to our budget, just in case.

Thanks @brij2006! I knew you guys wouldn't think I was nuts

yeah, you just need to call them.  Call a few different places.  I had to call the hospital, doc office, and insurance company when we got pregnant so I knew how much to save.

bingbongsmama

I know people say if you don't have the 20% down you're not ready to buy but IMO it's not cut and dry. We bought last year right before the FHA laws/PMI changed, our interest rate is 3.3% so it just can't get better than that, sellers paid closing costs and we spent about $6k in all. Mortgage is almost equivalent to what we paid in rent, no regrets.

Mom987

Haha we also just called and asked for weekly infant prices.

SmrBrd2012

20% would be amazing to have ready but H and I are doing 10% which we are pretty comfortable with. The condo price is on the low end and the mortgage and taxes will be small enough that basically one of us can comfortably pay for it with our salary. I don't feel that 10% is that risky especially in our situation.

cbee817

 

Xstatic3333 said:

Update: I think we've made our decision to start looking in September. We have 5% plus closing costs for the top of our price range NOW, and we both have good credit, so our hope is that by September we won't need to do FHA. We also have our e-fund and already own furniture and most major appliances, which is a huge help. Thanks all for your advice and perspectives! No retirement funds will be harmed in the purchase if this house A related vent-sat down to do future budget with a kid the other day, since that will affect what our payments need to stay under, and couldn't find a single daycare in our area that puts prices online. Why is this some sort of trade secret? I don't want to be the crazy lady calling daycares and saying "We may try for a kid in two years and I'm trying to budget. What is the weekly cost of your infant room?"

Take into account about 3-5% per year for rate increases at day care centers as well- we've got hit with that % every year since DD#1 was born in 2010.

vlagrl29

I've heard infants are way more expensive than toddlers.  One of my girlfriends chose an in home daycare because she couldn't afford normal daycares.  One of the reasons I stay home is because it's too expensive for us when compared to our salaries.

cbee817

vlagrl29 said:

I've heard infants are way more expensive than toddlers.  One of my girlfriends chose an in home daycare because she couldn't afford normal daycares.  One of the reasons I stay home is because it's too expensive for us when compared to our salaries.

Infants are more, but not as much as you would think. This is our breakout for the upcoming Sept 2014 - August 2015 school year. It's more expensive per day if your child only goes 2, 3 or 4 days. We also get a sibling discount for both girls at 10%, they don't charge for the major holidays, and we get 20 vacation/sick coupons (10 for each) to use throughout the year. Ours go 5 days a week (except for July and August, they only go 2- DH is a teacher), so our total for the 2014 calendar year is projected to be about $19,500 for 2 kids. That is the same as our mortgage, taxes, and utilities for our current home- it's a huge expense, but in our case, it's not enough where it makes sense for one of us to stay home for 5+ years. 

0 - 18 months			18 months - 3 years			3 years - 5 years
5 days	$54		5 days	$51		5 days	$47
3-4 days	$57		3-4 days	$53		3-4 days	$49
2 days	$60		2 days	$56		2 days	$52

Xstatic3333

I haven't actually made calls yet, but it seems like FT infant care in a center is going to run $1,000-$1,300 for us based on state averages. Basically that's one of my biweekly paychecks. I'm totally open to in-home, however, if we can find a great provider we trust. It's pretty like each of our moms would take a day too, but I don't want to count on that. I want to keep working regardless of daycare finances because I really like my career and if I leave for five years I'll never get back to where I am. Le sigh.

Anyway, this is cart way before the horse. I have a pretty obvious case of babies on the brain right now, but we're a year and a half out from even starting to try.

vlagrl29

Yes, if you love your career you wouldn't want to stop.  I"m lucky to be able to stay home full time with DD and still have my career.  I'm finally getting to the point of wanting a 2nd kid but we won't be TTC until at least a year from now.

sparklerose

We are currently looking to buy a home within the next 6 months. Seems like all the houses in our price range go within 2 weeks of being put on the market.(I am a crazy redfin-er and get all updates in our price range in the area we want)  This is for one reason - schools! There is one district in our county that has by far the best schools, the district we currently rent in has horrible schools. The market gets much more difficlut for buyers in the spring/summer because everyone is tring to get into the district before school starts. That's why we are considering looking now with a little less down, instead of waiting. But apparently the market slowes after September so we could wait too.

My point is, if you are buying a forever home, or a home where you plan to have school age kids, be sure to check out the school ratings!

Xstatic3333

sparklerose said:

We are currently looking to buy a home within the next 6 months. Seems like all the houses in our price range go within 2 weeks of being put on the market.(I am a crazy redfin-er and get all updates in our price range in the area we want)  This is for one reason - schools! There is one district in our county that has by far the best schools, the district we currently rent in has horrible schools. The market gets much more difficlut for buyers in the spring/summer because everyone is tring to get into the district before school starts. That's why we are considering looking now with a little less down, instead of waiting. But apparently the market slowes after September so we could wait too.

My point is, if you are buying a forever home, or a home where you plan to have school age kids, be sure to check out the school ratings!

This is a good point! The schools in the towns where we're looking are, at this point, good enough but not great. I work with schools, though, and I've seen amazing teachers at so so schools and meh ones at supposedly great schools. Frankly, the Common Core terrifies me so much that we may be looking at private or Catholic school no matter where we live. The good news is, if we budget to afford infant daycare we'll also be able to afford private school if need be.