Down payment

dragonstarjk · January 2016

I agree, there really is no 'one' way to do things. We bought in 2004--a whole different era in mortgage lending, so I don't have much to add. We put down ZERO but didn't have to pay PMI.

We had a 2 year ARM and a second mortgage; we've since refinance twice, and now sit comfortable in a 15-yr. fixed at 3.375%, which will be paid off in about 10 years.

We bought well under the amount we were pre-approved for and are less house-poor than a lot of our friends who made a down payment but bought way more house.

It wasn't the most conventional way of doing things, and I'm sure the 0% makes a lot of people cringe (I don't even think that's possible these days), but that part doesn't matter in the end because we have made smart decisions along the way, and we didn't buy any more than what we truly needed. That is the most important thing in the home-buying process, IMO.

jtmh2012 · January 2016

smerka said:

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.

Basically the number comes from industry experience saying that the more of a down payment people make, the more likely they are to make their payments in full, on time and less likely to walk away from the house if something happens.

It also shows that you're able to responsibly spend money (which goes back to on time and in full mortgage payments) and that a life emergency (broken hvac, major car repairs, etc) have less of a chance of causing you to miss payments.

This is why for the most part (yes, there are exceptions) that the interest rate will go up if you're under 20% or that your lender may (or not) require PMI.

cbee817 · January 2016

I put 5% down for my condo in 2004, when we sold that in 2007, we put 10% down for our house. Our PMI went away when we refinanced in 2010.

I think we can do 20% if we move since we should clear about $100,000 for our current home. The earliest that would happen is Summer 2017.

abrewer5 · January 2016

We didn't put anything down when we bought our house and that was entirely due to lack of planning and impatience. We were young, stupid and not very MM at the time. We did get a great loan program thou, so we are not required to pay PMI.

In the future (thinking of moving in 5 years or so) our goal will be to put 20% down IF we can keep our e-fund at a decent level and cover all the closing/moving costs. If not, we may settle for less than 20% down depending on interest rates, the house we find, etc.

jessica490 · January 2016

We just bought in August and put down 7% for a conventional loan and don't have PMI in our payment (I forgot how that worked out). We live in HCOL.

littlemushroom · January 2016

I am surprised so many people were able to get a mortgage with no PMI and putting less than 20% down. In our area, we couldn't find anything like that with a conventional mortgage and our credit scores were over 800. We bought our house in May 2015.

LillibetteV · January 2016

littlemushroom said: I am surprised so many people were able to get a mortgage with no PMI and putting less than 20% down. In our area, we couldn't find anything like that with a conventional mortgage and our credit scores were over 800. We bought our house in May 2015.

A lot of times people end up with what is considered "lender paid PMI" - they'll agree to a higher interest rate to avoid the added PMI payment. That's what my lender tried to "offer" me when I refinanced and the appraisal came in way below market value. It was somehow worth less than the original appraisal from two years earlier despite $20k worth of improvements AND a real estate market that exploded. You have one weekend to go to an open house and offer over asking in my city or else you aren't getting a house because it's that competitive.

I told them that unless they honored the original locked in rate that we had agreed to before the appraisal I was going to another bank and filing a complaint against their appraiser with his license board (my FIL in a real estate appraiser and he wanted to file a complaint anyways he was so outraged at the straight up false information in the report - it was that bad). It took a LOT of emails and phone calls to get that refinance done because I didn't feel like finding another lender, but I wasn't about to admit that to them!

hoffse · January 2016

Yes, it's usually lender-paid PMI, and you take a slightly higher interest rate for it. That's why it's worth running the numbers with PMI, with the higher interest rate and lender-paid PMI, and then putting down the full 20% to have no PMI and a lower rate.

There will be a break-even point when the 20% down is the best deal, but it might be so late in the loan that it actually costs more (in terms of your cash that's tied up) to do that than one of the other two options, if you don't plan to stay in the house forever.

If you anticipate large salary increases, or an inheritance, or student loans being paid off at a certain point, etc. that can make it even less compelling to tie up cash at the point of purchase. H and I are in this situation because I'll be up for partner in 4 years, and he'll be up for partner in 6. We will be done with student loans in 6 years, and we spend 2x our mortgage payment on student loans each month. We plan to be in our house another 8 years. So taken together, tying up cash when we bought did not make sense for us, because we needed cash on the front end far more than we'll need it on the back end when we sell.

smetter04 · January 2016

We bought in 2013, and put 5% down and pay PMI. At the rate we were saving when we bought our house, we probably would have had 20% if we waited a couple years. However, inventory in our area at the size/features/price we wanted have been few and far between since then (every so often I check out what's for sale) so if we waited for 20%, there wouldn't be any houses we wanted/could afford to buy. From time to time we get letters from realtors encouraging us to sell because there is an abundance of buyers who want our type/price of house with no inventory to match. Sometimes I wonder whether we should have waited to buy, but then I see those letters and know we made the right decision.

kmurphy2131 · January 2016

hoffse said:

Yes, it's usually lender-paid PMI, and you take a slightly higher interest rate for it. That's why it's worth running the numbers with PMI, with the higher interest rate and lender-paid PMI, and then putting down the full 20% to have no PMI and a lower rate.

There will be a break-even point when the 20% down is the best deal, but it might be so late in the loan that it actually costs more (in terms of your cash that's tied up) to do that than one of the other two options, if you don't plan to stay in the house forever.

If you anticipate large salary increases, or an inheritance, or student loans being paid off at a certain point, etc. that can make it even less compelling to tie up cash at the point of purchase. H and I are in this situation because I'll be up for partner in 4 years, and he'll be up for partner in 6. We will be done with student loans in 6 years, and we spend 2x our mortgage payment on student loans each month. We plan to be in our house another 8 years. So taken together, tying up cash when we bought did not make sense for us, because we needed cash on the front end far more than we'll need it on the back end when we sell.

Exactly where we will be. We really need cash reserves right now (and are in the process of house hunting right now) because my husbands salary is lower, but he will be a big raise in May, then another 5% in september and another 5% minimum every year after that for 5 years so our income is going to go way up.

maple2 · January 2016

We ended up putting 20% down due to an inheritance, but we originally only planned to put down 10%. We bought after both having been grad students for a couple of years, which had limited our ability save. We knew we were going to have significant boosts in income that would make the payments manageable. We already had 2 kids and didn't particularly want to move again in a year or two, so we were willing to pay a premium for the convenience of not having to do that.

julieanne912 · January 2016

Late to the party here, but we did 10% down. We had enough to do 20, but it would have drained us complately, and our home was brand new and we knew we needed to put in a driveway and front yard landscaping in the first year, so we opted to save our cash on hand to do those things. We paid the PMI up front which was in the 4 grand range. Our lender also offered the monthly PMI and the lender paid PMI but we decided the up front was the best bet for us, since we plan on staying in this home until at least retirement.

In many areas, the time it takes to rent and save up the down payment ends up being detrimental as you end up wasting more money on rent. In our case, we owned another home previously but had a very specific want for our next home, and this new build opportunity came up... and they don't come up very often.

csuave · January 2016

Just to emphasize the point of timing, as I mentioned I was a little short of 20% when I bought in 2003 (my parents spotted me the shortage) and if I would have gotten a bigger house I would have probably gone under 20%. But it was still important for me to buy at that time instead of rent for a little while longer because of the timing.
I was being relocated for work and they were paying for it. To not take advantage of going directly into my new house on my company's dime would have cost me. It would have also been a headache to have to move yet another time after I had the 20% saved up. This was my final move of 3 moves in 3 years...all paid for by work.

orangehills · January 2016

We just bought a house, and we put 20% down. Mainly because we sold a house and we took all of the equity in that and put it towards the new place. We still kept a big savings account on top of that as well.

brij2006 · January 2016

We put 0% down. Dumb, dumb, dumb.

Our house was a foreclosure. We paid $49k for it, and it appraised at 72k. Because of this, we were able to still take out $11k in money for remodeling it, and ended up with a $60k mortgage. It was still low enough to not need PMI, but we had a 5 year balloon loan.

We refinanced it 2 years ago for a 15 year, fixed rate mortgage. Thankfully our incomes increased drastically, and our mortgage payment was only 6% of our takehome pay.

We got very lucky with how things worked out, and now our home is paid off completely. But we were young and impatient and wanted a house NOW. We should have gotten our finances in order, paid off some debt, and then bought a house.

RosieC18 · January 2016

We just bought in November, and put 10% down ($56k on a $560k house), with 3.875% for a 30yr fixed. We also borrowed $25k from my in-laws for closing costs & some start-up costs. This is not exactly how we planned to do it (we were planning on starting to look seriously this month, but instead ended up putting in an offer on a house we loved at the end of October), but it ended up being the right thing. We have no PMI, but not because it's lender-paid. The broker was able to look at our other savings (including retirement & e-fund), and calculated that we woul dhave at least 1 year of mortgage payments saved after buying. Apparently, that was enough to do without PMI.

Before all this, I was really against buying before we had 20% saved, but eventually I was convinced for the following reasons:

1) We are in a very HCOL area (DC). This means rents are high (more expensive than our mortgage for a similar property) and housing costs are rising. The longer we wait, the more expensive a house would get. We're not trying to make a ton of money on our investment, but I don't want to buy at the top of the market, either. Besides, I hate giving someone else $1500/month for a 700sqft apartment where we don't get any of the equity or tax benefits.

2) Our income recently went up over 50% as my husband switched from public to private sector work. We could have saved the remaining 40k in downpayment in a few months, which would have been nice, but now it means we can pay back the in-laws quickly. Moreover, it means that while we weren't able to save as much as we wanted before buying, our payment is very manageable given our new income. Even if H goes back to government and I leave the workforce, our house would still be affordable.

3) We can re-amortize our loan at any point if we put at least $20k more into it. My husband will get a bonus of around this size most years from the foreseeable, so we will likely take advantage of this at least once and cut down our monthly payment.

4) This fall was a great time to buy in our market. Prices momentarily dipped and the market slowed way down. It's very cyclical in our area, with closing-to-asking ratios and median-days-on-the-market going way up in spring and getting more reasonable in the fall. We got asking price without having to use our escalation clause by buying in November, but I'm confident there would have been several more offers if the house had been on the market in the spring.

5) Interest rates were just on the cusp of going up, making it a good time to buy. I don't believe all the hype about getting in before rates jump through the roof, because the Fed is moving pretty conservatively and it's not like mortgage rates are going to be up to 10% next year, but it was an extra push.

6) This isn't very MM, but I really wanted to own a house, and one that we could stay in for a long time. I have moved so many times since middle school and I really hate feeling unsettled, and like I don't have my own space. I wanted a guest bedroom and an office and a yard so we can get a dog. A few months probably wouldn't have mattered, but we couldn't have gotten this house if we waited, and it was every thing we wanted.

Buying a home is a huge financial investment and you have to be responsible about it, but it's not only a financial decision. We were willing to pay more for the life we wanted, which included a single family home sooner rather than later. Be smart in your choices, but I think it's also good to remember that there's more to life than money (which is what I tell my Dad, who thinks no one should ever own).

short+sassy · January 2016

Late to the party, but I bought my home with 20% down. However, I had to borrow money from my mom to do that and I was SO financially drained for many months.

I'm not sorry about the way I did things...though I really wish I had started saving more money sooner...but I was also crazy lucky that I did not have anything major happen in my first year of home ownership, because I would not have had the money to deal with it.

Down payment

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