Money Matters
sparklerose
member
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3.5% down payment
Would you consider buying a house with only 3.5 dp? Dh andI are just finishing paying off debt (started with nearly 100k with credit cards and two cars!)We will be totally debt free in December!!! We have a small 5k efund. Our current plan is to put 3.5% down on a house in Summer of next year, and pay closing costs.
Would you consider this instead of 20%?
Re: 3.5% down payment
Congratulations on paying off all of that debt!
In addition to your down payment (which I prefer to be 20%) you will also need closing costs, moving costs, start up deposits, repair and renovation expenses, decorating and furniture, tools, ladders, garbage cans, lawnmowers, snow removal equipment, rakes, hoses , lawn chairs and host of little expenses that all add up
Starting June 2013 all FHA loans with less than 20% down will pay PMI for all 30 years of the loan!
When you are financially ready to buy, keep your housing expenses to 25-28% of your TAKEHOME pay for (mortgage+PMI+taxes+insurance+utilities+HOA)
30-35% if you live in a HCOL area.
Ugh. I guess I knew 20% was best. DS will be in kindergarten in a little over 2 years. Our plan was to buy a house next summer so he has a full year at the daycare/preschool that will he would be attending with the same kids as Kindergarten, and make sure they are all in the same district ( a much better one than were we currently rent).
I honestly cant even say how long it would be to save 20% down, plus closing costs and a good efund. That would be over 100k. Which is 95k more than we currently have in savings. Once we are putting the $2200 a month we currently put to debt to savings, the savings will go faster......but that still feels hopeless.
Thank you! I still think we might look into less than 20% down options....we will be buying a house much under what we can afford so a little extra for mortgage insurance seems like something I could live with.
This is us, we didn't put down 20% when we bought house in 2012, got a low interest rate and fixed 30 yr loan. This is our hopefully 'forever' house- we were tired of paying apartment rent. Although it would be nice to have 20% to put down, I would rather spend the money on house mortgage than rent.
20% is always ideal, but lots of people don't/can't do it. It sounds like you need/want to be in a house at a certain time for your son. I think that is more important than worrying about PMI costs.
However, you did pay off 100k in debt so you're probably saving quickly. With the FHA change I would try to get to a DP that would allow you to get a conventional loan. The higher the DP the lower PMI will be. Even if you can't get to 20% maybe you can get to something better than 3.5%. PMI will eventually go away with a conventional loan.
Even if you can't swing the 20%, don't do FHA at 3.5%! Save up to at LEAST 5% to qualify for a conventional loan. You will need more at closing, but your monthly mortgage cost will be much more managable and you'll be able to drop the PMI after you're at 20% equity.
I'm doing the 5% conventional route, and while it would have been better to wait and have 20% DP, the housing prices are too good right now and the mortgage rates are such a deal. If we wait till we have 20% we will lose out on this window (housing prices have already significantly increased just over the past 4 months that we've been looking at houses!).
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Woah!!
I agree, the upfront cost of interest and long term interest with 3.5% FHA loan wasn't worth it. Try to go for a 5-10% down payment in a conventional loan. At least then you'll be done w/ PMI after you reach 20%.
I wouldn't do an FHA loan. I understand that saving 20% is tough, but if I were you I would do my best to qualify for a conventional loan and make sure your credit is great when you do. We live in a HCOL area, and have a healthy 10% downpayment, along with plenty of cash for closing. We also have money leftover for emergencies. Our decision was that we'd rather hold back some cash to be safe in case of emergency than try and get a full 20% DP, which would be $100k on a modest starter home.
The trade off is that we either need to pay PMI (which can be a lot for homes around here - $200/month) or take a slightly higher interest rate with a lender-paid PMI loan. In our case, the LPMI option is actually better over the long term (we ran a lot of calculatinos to check this) as the difference in interest rates is very slight. We also chose to buy a house that is much less than we (technically) can afford to ensure we can still build healthy savings to weather any unforeseen issues.
FHA just seems like a bad idea now that they have permanent PMI. That seems nuts to me, I suppose one could see about refinancing, but I am not sure about the rules governing that options either.
Good luck!