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down payment amounts
Hi- I used to post on the knot & now I am on the bump, but I haven't posted here yet, so hi!
My husband & I are looking to buy our first home in Chicago (a condo). We make good money (6 figures), but we also went to grad school & have student loan debt. Plus renting in Chicago is not cheap. We can afford our lifestyle (although we can cut back in some places) and affording monthly rent/mortgage payments is not a problem. Our problem is the down payment. We had a lot of money...then we had a wedding. We've saved up some (about 7000) & have 1800 sitting as our apartment security deposit. We will be able to save more once it's time to actually buy, but the amount we just don't know.
So, my question is, in your experience, what is an adequate down payment? I know people say 20%, but it is not realistic for us to save $60k. My mom cannot help and we believe we can borrow a small amount from his parents, but we have not asked. Just curious about what realistic down payments look like. We looked at FHA loans when we went through the pre-approval process, but we are not interested because of the high insurance payment on it. Doing a conventional loan with 5% down is the cheaper monthly option, but again it requires more down.
Thanks!
Re: down payment amounts
The reason why people say 20% is because that is the magic number to eliminate PMI (which can be high). Do your research. We looked into several different banks and options. One bank told us that a VA loan (my husband served 4 1/2 years in the Army) wouldn't be good for us because it was for people who didn't have a down payment and we had a decent one. The bank wanted us at a higher interest rate (we locked in at 3.5% back in May and don't have PMI because it's a federally backed loan) so that they would earn more money and also get the PMI. Question everything.
Personally, I've been saving since I was 22 (I'm 30 now) and my husband and I have been saving/living on only his income for almost 4 years, so we were able to save 17% down payment on an almost $300K house. This includes putting me through grad school (paid 100% out of pocket)/settling his father's estate/paying for a big wedding) We made sacrifices along the way. We don't have smart phones, we don't have flat screens, new computers. Our priority was buying a house and we made it happen because this house (we close today!!) isn't a starter home, it's possibly our "forever" home.
For all FHA loans the PMI is now for the life of the loan! That is a ton of money to "waste" on PMI.
You might consider scaling back your current lifestyle and live like poor college students and save more, get second PT jobs, sell stuff you do not need -- anything to save, save, save. Make that a priority.
When ready to buy, do not spend more than 25-28% of your TAKEHOME pay 30-35% in a HCOL area. Consider your future plans for a family and if you plan to be a SAHM or will continue to work (and pay childcare) - (we based our purchase on one income only - and yes, that meant less house)
In addition to a down payment you NEED to have a good emergency fund of 6 months' expenses.
You will also have moving expenses, utility deposits/up costs, repair/renovation expenses, additional furniture/appliances as well as decorating. Tools, ladders, lawnmower, snow removal, yard items, garbage cans etc add up.
Owning a home is MUCH MORE THAN THE MORTGAGE PAYMENT! Get financially prepared before making this purchase.
Read two good books:
Home Buying for Dummies and Mortgages for Dummies
Don't forget a Home Inspection - which costs $500 in our area
(We saved for 6 years before buying our first home)
We ended up going conventional with 10% down (we still own our first home and rent it out, so we had to set aside $ as a "cushion" for time when we don't have a renter as well as any repairs that we need to make on it). Keep in mind, with a conventional loan your downpayment CAN'T include loaned money and getting gifted money to "count" is hard. You should wait until you can come up with the downpayment, closing costs, etc. with your OWN money before you try to buy a home. It will take some time, but it's better to start off your homebuying process only owing the bank -- not your family, too.
Have your lender set up a Good Faith Estimate worksheet with 3 different price points. We did 250, 275 & 300. That way we could see on paper how much the downpayment would be, how much closing would cost, all the other little fees, and a rough idea of our monthly payment (things like homewoners, taxes and the rate were an estimate, but it was close enough). Once you figure out what you can realistically save between now and settlement, you will have a better idea of what you are looking at.
Good luck!
I hear what you are saying about not wanting to move again after only one year, but if you will be saving $600/month...that is another $7200 that can go in the down payment kitty.
I know some people have expressed concern about your in-laws "gifting" or loaning you some money for the down payment. My mom did the same thing for me and I didn't find it to be a big deal. All banks are different, but I basically just had to have my mom sign a notarized letter that the money she was contributing to my down payment was a gift with no expectation of repayment (or something to that effect). My loan officer gave me almost the exact verbage of what the letter needed to say.
Of course, it really was a loan and I gave my mom a promissory note with a payment schedule, lol. But those are the games you sometimes have to play with the banks and their wackiness.
As an aside, I did find it VERY surprising how concerned the bank was with where my down payment came from (outside of the "gift"). In fact, about 1-2 weeks before closing, my loan officer asked if I was expecting to receive any monies before closing outside of my normal paycheck. I do independent contracting work and was expecting two little checks ($100 and $60). Even for those amounts, he told me I should either hold the checks until after closing or I would need to turn in a letter to the bank about where those checks came from!
I'm new here, just joined from the TK and my new Husband and I are in the process of buying a short sale and I was so confused why our loan officer cared which account our downpayment was coming from! MIL gave us money for a downpayment but we also have plenty in savings and the loan officer was urging us to use the money in savings otherwise we have to provide my MIL's bank statements too and prove that it's a gift. Just had an 'aha' moment that they want to prove your down payment is actually your money and not another loan. Thanks for sharing that info!
OP we are doing a conventional loan with ~10% down....20% wouldn't leave us with enough to do the renovations we want and maintain a strong savings, wish we could've put that much down though!