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Down payment taking forever
Posting over here a quick question.
Were any of you tempted to for-go the 20% down and just put 10% down? I know we'd have to pay PMI, which is huge, but it's taking us forever to save. We currently have 10% down (we've saved $45k) but the houses in our area that we are interested in are between 400-600k.
Our current situation: Live in a condo (we own/it's mortgaged) but it's a loft condo, so it's super small. Having a baby back in Sept didn't help the situation! We are currently trying to decide between renting our condo out (and potentially making 300-500/month off it) but it would still take us another 2 years to save at this rate or buying with only 10% down.
I know you can't look in your magic 8 ball and give me an answer per se, but what would you do in our situation? Also, we have no cc debt as we pay off our card every month in full. We do have student loan debt and car debt (2 years left on a car loan) but other than that, nothing I can think of off the top of my head.
Re: Down payment taking forever
It really depends.
You don't always need to pay PMI with 10% down. In some cases you can get an 80/10/10 loan (essentially, borrow 80% with one loan, 10% with a secondary loan, 10% down), which has significant cost savings because your interest on your second loan is tax deductible. However, these loans can be harder to get, and some banks won't do them at all.
Keep in mind that in addition to having your down payment, you'll also need funds for closing costs, and many banks want to see reserve funds for 3-6 months of mortgage payments. If you plan to keep your current condo and rent it out, you may need a long-term signed lease for the condo to not count against your monthly expenses. Both of these factors may significantly reduce the amount you can borrow; for example, if you budget $8k for closing and $7k for reserves/emergency funds, your $45k has been reduced to $30k, which is much less than what you need for a house in your target price range. On the other hand, if you have other savings and can get a loan with funds toward closing costs, you may be in better shape.
if you're looking for a home above the conforming amount in your area, you may need a jumbo mortgage. Jumbo mortgages have stricter requirements because they can't be resold to Freddie Mac/Fannie Mae, and it's much more difficult to buy a jumbo with less than 20% down. Not impossible, but more difficult.
Talk to a good mortgage broker in your area for better feedback on how to handle your condo income, the conforming loan amount where you live, a closing cost estimate, and options with a smaller down payment. Good luck!
I thought 80/10/10 loans were nearly impossible to get ? We live in a hcol area, so the homes we are looking at aren't above the norm. I think we need to look at our numbers again and weigh the costs of renting versus buying. Thanks for your help!
Our forever home. We don't want to buy a starter home. We feel like we did that with our condo.
thanks!!! I think he's pretty cute!
It's such a personal decision that is dependant upin your goals and financial situation. Do you have money saved that is seperate from your DP funds to cover closing costs and your emergency reserve fund? If so, it may not hurt to talk with a broker who can help you run through the numbers associated with different options.
We are in the DC metro area, so HCOL is just part of life. The median sale price in our entire half of the county is somewhere around $620k. We knew that we wanted to purchase a home that we could support on the lesser of our dual incomes, if necessary. In order to buy a house in our HCOL area and be able to make the monthly payment on the lower of our 2 salaries, we needed to put down 20% both to lower the amount necessary for principal and interest and to avoid PMI. It took us longer to save, but it was worth it to have that financial security. Our plan fit with our goals, but that doesn't mean it would fit with your goals.
I've had two 80/10/10 loans, one of them a jumbo, since 2009. That said, we have excellent credit scores and were well above the debt/income ratio requirements. They do exist, although they have additional requirements and not every lender will do them. A good local mortgage broker can help you.
FWIW, I also live in a HCOL area (Boston), but the raised limit for conforming loans is still laughably low. Again, talk to a good mortgage broker-they will know the limit in the areas you're looking at (it varies by zip code).
You may have to downsize your expectations, get more serious about downsizing your current spending/lifestyle(eating out, vacations, new clothes and non essentials) to save more or a combination of these two.
Have either of you taken on a second PT job, sold items no longer needed or use? Are YOU working? If not can you find a PT job and have DH do child care evenings or weekends while you work?
Can you sell the cars and buy something used for less? (and finance for less than 3years)
Have you calculated the difference in cost for a 10% vs 20% downpayment - short term and long term? How does that impact your other financial goals?
We're closing tomorrow on our first home, which we plan to live in for a while. We also live in a HCOL area (DC metro area) and are putting 10% down. I would have loved to put down 20%, but that would take a few more years and also deplete all of our other assets. As it is, we're not going to be paying that much more than we were renting. We chose to go the lender-paid PMI route(slightly higher interest rate rather than a PMI payment) rather than buyer-paid PMI - in our case, the diffference in interest rate was negligible. We ran a lot of scenarios to make sure it was the best decision for us.
We have excellent credit,so our interest rate is still really low - honestly, lower than people we know who have put 20% down. We also have plenty of other savings and assets outside of the house, so we are in good shape across the board and in case of emergencies. We made sure to buy at a level that allows us to save a lot of money every month - and when we have kids, actually be able to afford day care.
The key is really knowing the short and long term costs to your options, and accepting whatever those costs are depending on your decisions. I will say that we were careful to manage our expectations - we didn't get the house that is perfect, but we got the one that works for our life and budget.
We live in the same city