Post # 1
So I’m completely clueless with this, I grew up in apts so I can’t ask mom for advice.
I’m looking into buying property, going to an open house today that looks more or less like my dream (from what I read online). It’s on the same street I’m renting on currently, so I know the neighborhood.
I was discussing with boyfriend last night and he doesn’t think I should put a lot down. I think the opposite of putting as much as I can down, up to 20%. Putting 20% down at the cost of this place is a really big chunk, but to me it seems worth it to just get a big chunk paid down quickly and thus borrowing less. Even with the 20% down I’d still have a decent amount in savings (my boyfriend’s concern is clearing out my accounts and then ya know one of those bad scenarios where I lose my job..).
What are everyone’s thoughts? What percentage did you put down? Is it better to do the most down possible or take a bigger mortage? Did you have a lot in savings after the down payment?
Post # 2
jessicabear: I’m pretty sure 20% is what’s expected for down payment..where I live at least.
Post # 3
The more the better. Why pay a mortgage forever?
I don’t know for the U.S. but at some banks in Canada, there is a minimum down payment that is required in order to qualify for a conventional mortgage. Otherwise, you are considered high risk and need to pay for default insurance which slows down your payments since it’s not paid towards your principal.
Post # 4
jessicabear: It depends on the kind of loan you plan to do. For a traditional loan, 20% is usually customary, or if you can save more than that – it certainly doesn’t hurt you. When Darling Husband and I purchased our home (almost 8 years ago) out of college we opted for an FHA (first time home buyers) loan where we were only required to put 3% down. The downside to that is having a mandatory PMI (basically a mortgage insurance) which you have to pay down to get removed. We are actually just now refinancing to a standard 15 year loan, and eliminating the PMI. We were able to lock in an amazingly low rate at 15 years and our goal is to have our house paid off before we’re 50.
A lot also depends on the interest rate. Personally, I feel it’s better to put the minimum you can as a downpayment (provided you’ve got a good interest rate) and instead use the extra cash to make 1-2 extra payments each year towards the principal. That will help pay your loan down faster.
Post # 5
jessicabear: After you pay your downpayment, you also want to make sure you have enough saved up for padding. Lots of things could go wrong – you could buy the house and only after discover that it needs a few different things fixed/replaced, so you want to make sure you’ll have the funds for that as well as your emergency savings (for things like if you lose your job)! Just something to think about!
Post # 6
More is definitely better! If you pay 20%, you eliminate the PMI (Private Mortgage Insurance) and that will lower your total payments. We only paid 3.5% down since we did a FHA First Time Homebuyers Loan and we do have to pay the PMI.
Post # 7
We put 20% down to avoid paying CMHC (Canada).
Post # 8
- Wedding: June 2015 - Holly Hedge Estate
weatherbug: we are planning on doing the same FHA first time homebuyers loan. Is it difficult to get approved for that? we are going to start exploring the entire process after the holidays.
Post # 9
jessicabear: Echoing what some PPs have said — there are a lot of factors that determine what’s best. Don’t forget that there are closing costs in addition to the down payment. If you have enough savings to put 20% down, take care of closing costs, and still have a healthy cushion, I’d put the 20% down to eliminate PMI.
Post # 10
The more cash you put down, the less interest you’ll pay in the long run. Find an online mortgage calculator and play around with it—the difference can be huge.
The only disclaimer is that you should make sure you have enough cash on hand to deal with any unexpected expenses. Don’t dip into your emergency fund to increase your down payment.
Someone above said that you should make a smaller down payment so that you have cash on hand for additional principal payments every year, but that makes no sense. Sitting on extra cash for another year or two just means you’re paying interest on a loan for no reason. Taking out a smaller mortgage would make your monthly payments lower to begin with, so you could use the savings there to make the additional payments, or else just choose a shorter loan period from the outset.
Post # 11
SweetBeets: We were approved for both a conventional and FHA loan w/no problem. We have low debt, good credit scores and make about $130K combined so we had no issues. I see you got married at Holly Hedge, which means you are in my general area (do you live in PA or NJ?). We loved our mortgage company so if you need any details and do live in the area (we live in NJ), PM me and let me know! 🙂
Post # 12
We were going to put down 20% just to avoid having to pay PMI, but then we had to put down 24% because of the limits in our county for conventional vs jumbo loan. We had the cash for up to 50% if we wanted to drain everything, but were definitely not comfortable enough to do that. We figured just enough to get the best rates and reasonable monthly payment, but putting say another 10-20k down was only saving us 50/month which we didn’t feel was worth it.
Post # 13
Definitely 20% if you can do it comfortably. For anything more than 20%, it depends on where your money is. If it’s invested, it’s likely making more than the mortgage interest rate, so it makes sense to keep the money in investments and just make the monthly payments. However, if your money is just in savings or somewhere not making much, avoiding interst charges as much as possible is smart.
Post # 14
Depends on a lot of factors, including your taste for risk, your credit, etc. Rates are pretty low right now and typically the more you put down upfront, the better rate you’ll get. However, right now (and things can change) the rate difference between putting 5% down and 10% down is about a full point (1%) but the difference between putting down 10% and 20% is maybe 0.01-0.02%. Your monthly mortgage will also obviously be higher the less you put down, but if the higher mortgage amount is doable, you’d be better off putting the extra 10% into nearly any kind of investment. Homes only appreciate about 2% a year on average, whereas you can get a better return on many even conservative investments.
Also, you do not always have to pay PMI if you put down less than 20%. Though that is true for a straight conventional loan, there are many other options out there and it’s worth asking. The better your credit, the more willing banks will be to waive it or structure your loan so you don’t need to pay it. I’d really suggest getting your most recent FICO score and reaching out to a few banks for what they can do for you and what unofficial rates would look like for you. Do NOT allow them to actually run your credit until you’ve decided who to go with.
Post # 15
viridianx: Oh no, I already allowed a bank to run my credit check – AND I didn’t even get any info out of it. I was trying to get a pre-approval so I allowed it but I have no pre-approval in hand and am going to an open house in a bit. SIGH.
I guess I’m going about this all wrong.