Down payment

foxygirl346

Obviously 20% is an ideal downpayment but Im curious how many MMers were able to do that? With this first house we did 10% and probably looking at doing the same with our next home so we can maintain some of our Efund.

bmo88

We bought our home in June 2014 and put down 10%. We left the remaining $3,000 we had in our e-fund. We didn't pay PMI though because we did a conventional loan that was an 80/10/10. So we got a second mortgage that was interest only at 5.99% (approximately $26,000). 

However, we just refinanced our home because it increased in value a lot in the last year and a half (by about $22,000). So we now have 21% equity in our home, wrapped our 2nd mortgage into our first (no PMI) and got a lower interest rate on a 20 year mortgage.

Ideally, we would have initially put down 20%, but timing wasn't going to make sense. We did a new build and prices were sky rocketing quickly. If we had waited a year (the time it would take to save up the extra money), our exact same home would have cost us $45,000 more. So we are happy with our decision. 

BlueBirdMB

We put 20% down.  I honestly believed that if we couldn't afford a 20% downpayment, then the house was too expensive for us.

als1982

I bought in 2009, when the government was giving $8,000 to first time home buyers. I borrowed $8,000 from a family member and put that down, paying them back upon reciept of the $8,000 incentive. That amount was about 5%. Personally, if I were in your situation and unable to put the full 20% down to avoid PMI completely, then I'd only put the minimum down and invest the rest.

csuave

I bought my first house in 2003 after working and saving for 2 years.  I bought at the lower end of the range I was looking in and was able to put 20% down but I needed a ~2 week loan from my parents to help cover closing costs.  I just needed a little extra cash until my next pay check came in and then I paid them back.  Back then I was single and was able to save a lot of each paycheck so I took my e-fund down to 0 but built it back up quickly.

Looking back I am really glad I bought a lower priced house.  It really helped set me up well financially.

I sold that house and bought a house with H in 2013.  The equity from house #1 was more than enough to put 20% (by myself) on the new house. 

Now H didn't have 20% to put down on his first house and he was only in the house for 2 years when he sold it to move in with me so once again he wasn't in position to contribute in a meaningful way to our down payment.

kmurphy2131

I think it really depends on a lot of factors. In our area, to put down 20% for a starter home would be $75-80,000 and that is for a house that needs a lot of work.  With rents being as high as they are here, it is seemingly impossible to save 20% if you have to rent/have student loans/want to live life.  We are putting down 3-5%, we could wait another year and put down 10% but it would be at the expense of higher interest, higher house prices, and spending $25K on rent which builds no equity.  We are very mindful of our expenses and have 6 months emergency fund for what our mortgage will be.  So we feel comfortable with our plan, although I know many others on here won't put down as little as we will.

hoffse

We actually put down less than we planned.  We had our mortgage guy run rates at multiple points, and we found that 10% was the sweet spot for us.  We took a tiny bump in the interest rate to put down 10% and have no PMI, but it made sense financially because the break-even point was at like 13 years or something (IIRC).  We plan to be in this house 8-10 years, so it actually saved us a little money to take the higher interest rate and put less down.  

The other thing is it freed up cash to boost our e-fund a little bit, since we were going from an apartment to a house, and we were able to put some cash into the house right away with some home improvements.  We've put a lot of cash into the house over the last year, but the house is now just about commensurate with others in the neighborhood, and we have a much lower mortgage payment than some of our neighbors. 

If we had planned to move in 5 years, then we would have needed to put more down, but the 8-10 year plan gave us some flexibility.  Our monthly payment is still low enough that we can afford it on one income, and that was really the most important thing to us.

AprilZ81

We put 10% down and also have a slightly higher interest rate for lender paid PMI (like .25 percent more, almost nothing).

We could have put down 20% but to do that we would have had to close on the sale of our previous house before closing on the new one (stressful) and we wouldn't have had any money to do improvements on the new house.

We closed on our house on the Thursday before Memorial Day, moved that weekend and then closed on the old house the first Friday in June.  

vlagrl29

we did 20% on our house and 20% on DH's building loan for his business.

Xstatic3333

We only did 5% down with a conventional loan. This isn't always wise, but I think it was a good choice for us. We bought way, way below our means monthly-payment wise but we're still able to land in a long-term house. We also had a ton left in savings. We do have PMI but only for a couple of years.

foxygirl346

We can comfortably afford the new house we are looking at in terms of monthly payments but dont have a ton of liquid cash as we have been in debt pay off mode for the past few years. Its hard to know if we should wait to save up the rest, drain down our efund, or just do 10%.

emily1004

We put down 25%. I didn't buy my first home until I was 34. I also believed if we couldn't put down at least 20%, then we were not ready to buy a home at that price. I like to call it delayed gratification. Of course, there are always exceptions to the rule, but too many people jump into home ownership and are just not financially ready for it.

littlemushroom

We put down 20%. We really didn't want to pay PMI.

Mustard76

We put 20% down on our first and second homes. We put 10% down on our current home. It was less than ideal, but we were moving from out of state, and we moved a year earlier than anticipated, so we ran out of time to save. We didn't want to move more than once in a short time, so we bought our home with a smaller DP than we wanted. We currently pay PMI but we make additional principal payments monthly, so barring a market crash we won't have to carry it the full 5 years. We ran numbers a ton of ways, and this made more sense for us than an 80/10/10.

JoanE2012

We put down 20%.  We believed that if we couldn't afford to put down the 20%, we had no business buying the house.

kmurphy2131

JoanE2012 said:

We put down 20%.  We believed that if we couldn't afford to put down the 20%, we had no business buying the house.

That may be true in some cases - but I know very few people who are able to put 20% down in my area.  Without buying a 1-2bed/1bath condo, and/or buying something terrible in a terrible location/town with lots of issues and bad schools.  There is no one right way to do things.  What matters is that people know what they are getting themselves into, and understand what they are taking on.  

smerka

We did 50% but that was so we could afford the house we wanted with one income so I could stay home with kids.

vlagrl29

smerka said:

We did 50% but that was so we could afford the house we wanted with one income so I could stay home with kids.

That's amazing! How long did it take to save that much?

JoanE2012

kmurphy2131 said:

JoanE2012 said:

We put down 20%.  We believed that if we couldn't afford to put down the 20%, we had no business buying the house.

That may be true in some cases - but I know very few people who are able to put 20% down in my area.  Without buying a 1-2bed/1bath condo, and/or buying something terrible in a terrible location/town with lots of issues and bad schools.  There is no one right way to do things.  What matters is that people know what they are getting themselves into, and understand what they are taking on.  

Honestly, I think most people can do it - it just requires diligent saving and time.  I think we live in a world where people often want things NOW instead of waiting.  Of course there are exceptions, I understand that.  My first condo that I purchased was a 1 bedroom/1 bath 500 square foot condo  - because that's all I could afford with 20% down at the time!  So yeah, I pretty much did what the people you know don't want to do.  

bmo88

Eh, to those that say you can't afford a home if you don't put 20% down...I say, live and let be. 

Let's face it, there is nothing magical about 20% being more stable other than the industry "saying it is" and not charging you PMI after that. (Though obviously having equity in your home makes your situation more stable, I am just saying 20% is arbitrary.)

Now, we didn't want to pay PMI and it didn't make sense for us to wait the year and save up the extra 10% (see above regarding our crazy market in Colorado--thanks marijuana). We were patient, diligent about saving and capable, but it would have been a financially stupid decision to wait. We use the same market to our advantage though to refinance and gain the extra 11% equity though.

Every situation is different, so stop saying that one size fits all and that people who don't do what you do aren't capable of achieving certain things, cannot afford stuff or aren't financial savvy.

End rant.

JoanE2012: Oh I am sure lots more people could do it...but that doesn't mean they want to or even should do it.

lbonga1

@kmurphy2131 The area we're looking at buying our first home sounds like the same situation (are you in the Bay Area?) That's the most likely place my career will take me, so we just have to deal with the housing costs. My plan is to get a starter home with a 5/1 ARM with maybe 7% down because the monthly payment will be anywhere from $750-1000 less than rent for a similar sized place (taxes/HOA/PMI included!) Then we'll save any extra that we would have paid in rent to put toward our forever home or invest, obviously planning to move before that first 5 years is up.

Xstatic3333

bmo88 said:

Eh, to those that say you can't afford a home if you don't put 20% down...I say, live and let be. 

Let's face it, there is nothing magical about 20% being more stable other than the industry "saying it is" and not charging you PMI after that. (Though obviously having equity in your home makes your situation more stable, I am just saying 20% is arbitrary.)

Now, we didn't want to pay PMI and it didn't make sense for us to wait the year and save up the extra 10% (see above regarding our crazy market in Colorado--thanks marijuana). We were patient, diligent about saving and capable, but it would have been a financially stupid decision to wait. We use the same market to our advantage though to refinance and gain the extra 11% equity though.

Every situation is different, so stop saying that one size fits all and that people who don't do what you do aren't capable of achieving certain things, cannot afford stuff or aren't financial savvy.

End rant.

JoanE2012: Oh I am sure lots more people could do it...but that doesn't mean they want to or even should do it.

All of this. Nothing wrong with waiting for 20%, and yes, most people could do it, but I really think the payment ratios and having a solid e-fund for repairs that may come up is so, so much more important. For us, buying a long-term home now was quite literally cheaper than renting in our city. Waiting 3-4 years to save 20% could have seen lots of market and mortgage rate fluctuations, so buying when we did just made sense to us.

hoffse

Yeah 20% is not a magic number.  And depending on how long you plan to spend in the house it may not be the best choice.  For many people who plan to do a 7-10 year thing, putting down a different amount might actually be better because the higher interest rate doesn't outpace the money you are holding onto until later on in the loan, and you are still planning on being in the house long enough for values to increase and principal to be reduced.   

We actually could have put down 20% and then chose not to when our mortgage guy ran the numbers on the rates for us.  I just didn't see a reason to tie up our money for 10 years, especially since it would have reduced our emergency fund and made improvements more difficult.  The savings on the interest rate for putting down 20% was so small that we would not have broken even on it unless we committed to staying in the house for a longer period of time than we plan to be here.

simplyelise

We haven't bought yet, but I wanted to chime in anyway

As most know, we're in extreme debt-payoff mode until August 2016 when we'll be 100% debt free. Then we will start saving up 6 months of expenses, contributing to retirement, ramping up our savings for DH's replacement vehicle, and then saving for a down payment. I've run the model numbers from September 16-July 18 which is when we want to buy (and we'll probably be paying for daycare by then too, which will drop our savings rate immensely). 

We want to have 6 months of expenses saved separately from our DP and we will probably be contributing about 12% towards after-tax retirement as well. From my models, we could conservatively have 21k in a DP fund, 15K in our efund, 20k in self-funded retirement and 7k in a car replacement fund -- if DH's current car hasn't gone caput yet. 

We'd be looking at a home in the 150-175 range with 21K dedicated for DP and closing costs meaning we'd probably be in the 10% range. Our current monthly income is about $5300, so even if we did a 15yr mortgage, we'd still be sending less than 25% of our income towards the mortgage, taxes, and insurance. 

Of course we'd still have another 15-22k in the bank in the efund and car fund, so if we wanted, we could get to 20%, but then we'd be taking on a ton of risk with no efund because all our money would be tied up in the house. 

Our town is a very stable market. We didn't even have much of a bubble in 2008/9. Our average property value increase basically just paces with inflation, so the house is not an investment. We don't plan on leaving this town and we'd honestly like to only buy once.

TLDR

That got really wonky. But the point for me is that I'd rather dedicate money now to limiting my risk overall than to saving a few more thousand for a 20% DP. Instead, we're reducing our risk through eliminating our liabilities in debt payoff and by saving a big efund. And we won't be at much risk with our home purchase because our market is not volatile and we'll have 10% equity with no other debt obligations. 

For me personally, I'd only feel like I could afford a house if I could put down enough to cover DP and closing costs on a conventional loan, still have at least 3 months expenses in my efund, and be under 25% of my takehome with a 15yr mortgage payment (plus taxes&insurance). I'm okay with getting a 20 or 30 year, but I want the 15 year to be under 25% as a good measure. 

smerka

It was good timing. I bought a condo in 2000 and had a 15 year mortgage. I sold in 2006 at the top of the market and walked away with $90,000. I moved into my then fiancé' house, got married, paid off his $50,000 of credit card and student loan debt, sold his house in fall of 2007 as the market started to crash and bought in December 2007. We could have gotten a better deal on our new house if we had waited a couple more months, but we were living with his parents and that just wasn't going to work out for much longer. They are sweet and generous to let us (and our pets) stay, but we needed to get out.

smerka

Oh and this is our For a Really Long time house. I am sure the 20% number comes from somewhere but it really comes down to what you and your lender are comfortable with.

kmurphy2131

lbonga1 said:

@kmurphy2131 The area we're looking at buying our first home sounds like the same situation (are you in the Bay Area?) That's the most likely place my career will take me, so we just have to deal with the housing costs. My plan is to get a starter home with a 5/1 ARM with maybe 7% down because the monthly payment will be anywhere from $750-1000 less than rent for a similar sized place (taxes/HOA/PMI included!) Then we'll save any extra that we would have paid in rent to put toward our forever home or invest, obviously planning to move before that first 5 years is up.

We are very close to boston.  I think we are just slightly better than the Bay Area.

kmurphy2131

JoanE2012 said:

kmurphy2131 said:

JoanE2012 said:

We put down 20%.  We believed that if we couldn't afford to put down the 20%, we had no business buying the house.

That may be true in some cases - but I know very few people who are able to put 20% down in my area.  Without buying a 1-2bed/1bath condo, and/or buying something terrible in a terrible location/town with lots of issues and bad schools.  There is no one right way to do things.  What matters is that people know what they are getting themselves into, and understand what they are taking on.  

Honestly, I think most people can do it - it just requires diligent saving and time.  I think we live in a world where people often want things NOW instead of waiting.  Of course there are exceptions, I understand that.  My first condo that I purchased was a 1 bedroom/1 bath 500 square foot condo  - because that's all I could afford with 20% down at the time!  So yeah, I pretty much did what the people you know don't want to do.  

I totally get your point, but I think that it just doesn't always make sense.  And it's not just about being impatient or wanting it NOW.  It's about the fact that when you rent you aren't building equity, yes, you have somewhere to live but you get no return on it.  With tax benefits, and the equity we will get paying into a mortgage it makes so much more sense to buy.  

To get a small condo (I have seen a couple around 900sq feet, 2 bed/1bath - the smallest we could get as two people and a dog) would be around 300,000 here for a bad location - and condo fees are 300/month!! We can't even afford 20% on that, to maintain a full e-fund.  Not to mention that size is not practical for as long as we would need it to be (we are almost 30 and want children) and you need to stay a while to make buying worth it.  We can get a house with a 3-5% downpayment, in a good location (related to commuting distance, schools, family, and resale value), an okay house (needs cosmetic work) for the same as our rent after PMI, taxes, etc are added in.  It will be a house that we can stay in for 10 years at least. Why would we keep renting when we could do that? Instead we can have the space we (and our dog) need, have space to build a family, and be putting that money into equity every month rather than spending it on rent. We will continue to have a 6 month emergency fund and be prepared to manage things as they come up.

Sometimes it is not about just wanting something "NOW" but simply looking at dollars and cents (we actually wanted to keep renting over owning but it didnt make enough financial sense)

JoanE2012

I get it, @kmurphy2131 - and I said I understood there were exceptions, and I expect that on a MM board.  Unfortunately I know several people IRL that are not the exceptions and are struggling.  

CuriousKiddosMama

My first house was just me, and I literally had 3% saves for the down payment. I shouldn't have bought it!
Our first house as a couple we put 20% down, and this house we ended up with close to 50% after selling our last house.

LillibetteV

I put 5% down when I bought to take advantage of an income based program in my state so I didn't have PMI either. I took advantage of the program because my salary was about to increase above the threshold so it would have cost me a lot of money to wait until I had 20%.

I refinanced this year into a traditional mortgage and the lender really screwed me on the appraisal - i.e. I had to fight to get it adjusted because they cut off over 200 sq ft, claimed I was in a crappier neighborhood across town (dude, look at a map), and compared my house to sales that were over a year old and HALF the square footage. According to a local realtor we had well over 20% equity, but the new lender kept claiming I was less than 15%. I threatened to go to another bank unless they honored the original rate and waived the PMI (I did agree to pay down more of the loan to make it 15% equity based on their valuation )- and it worked! It saved us $250/month and I've never paid PMI. So do NOT assume you must pay PMI under 20% - if you've got the credit score to back it up you can get a better deal.