Post # 1
I was wondering if anyone here has done this and how it has worked out for you. Darling Husband and I have been renting basically since working fulltime and I’m getting anxious to buy our first home. We are currently renting a townhouse that’s $1,400 per month. The plan is for us to stay here and save 20% for a down payment on a house, plus closing costs and nicer furniture.
If it takes us two years to save that amount (while contributing aggressively to our retirement plans), then we will have spent $33,600 on renting in that time and it pains me to think that could be going towards our own home… so would it make sense for us to put very little down just to be able to stop renting and deal with paying PMI? I can’t imagine the PMI would ever be more expensive than the money we are spending in rent.
Any insights would be appreciated!
Post # 2
MrsGirlyGirl : Yes, it makes sense. You’re right that the insurance is not going to be worse than sinking $1400 into rent. And as soon as you’ve put enough equity into the house, the insurance goes away. You do not have to be at 20% to buy a house. I am in a similar situation to you and my Mother-In-Law is an underwriter, so she knows the mortgage business more than anything and she says it would be a huge mistake for us to wait until we have 20%. Paying MI is not the end of the world.
Post # 3
I have not bought a home yet (not ready to put down roots!) but I can say that I don’t know a single person in real life who put a 20% downpayment on their first home.
Post # 4
Last year I talked to my bank about what I could afford with a less than 20% down. They said they would do 10% down and I wouldn’t have to pay PMI. I wasn’t too serious at the time so I didn’t look into it further so I’m not totally sure why I wasn’t required to pay PMI.
Post # 5
MrsGirlyGirl : Yeah, the PMI isn’t a strong enough reason to not buy a house if you’re buying a home that’s within your price range. I think the bigger fear is with folks that don’t have 20% because they’re buying above their price range. Especially with interest rates starting to rise.
Post # 6
My cousin’s didn’t put 20% down, and it definitely made sense for them to buy their house at the time. Financially, they have been fine and the PMI was not bad at all.
I say go for it!
Post # 7
No, you can buy with less. We bought with 5% down (we weren’t planning on buying a house but decided to due to some other changes) and then housing prices went up in the area (and we also paid more than the mortgage at times) and we got rid of our PMI through an appraisal. Maybe spent $2k in PMI total which yes, it a lot better than paying rent for another year or two IMO.
Biggest thing is to make sure you can afford your mortgage, interest, etc (including periodic maintenance or more depending on what you are buying) without stretching yourselves too thin.
Post # 8
It can definitely make sense. I would look into chatting with a mortgage/financial advisor about it.
We ended up putting 20% down because the “fee” to put what we originally wanted was like 5k and to make up the 20% it was only 8k but it all went to the mortgage. But our mortgage is lower than almost all of our friends’ rent, and instead of paying someone elses mortgage it’s going into our own equity.
Post # 9
Depends on the housing market where you live… But if you could get away with putting less than 20% down on a good house rather than paying over 30k in rent the next two years, I would go for it!
Post # 10
I’m a Realtor and I see many clients that don’t put 20% down, for various reasons. I always recommend that they talk to their lender first though. Sometimes it does make sense, other times it does not. If you’re in a very high COL area, you’re right, it could take years to save 20% and the difference between putting say 15% down and paying rent could be significant.
Post # 11
MrsGirlyGirl : I bought my first house at 20 with no down payment. But I got in right before values increased tremendously. I sold the house 18 months after purchase for a huge profit, which allowed me to put a down payment on my next house.
so it would depend on your market, if it is a good idea or not. FHA had mortgage insurance for the duration of the loan, so the cost to refinance out of it afterwards might not be worth it, especially if interest rates go up.
Post # 12
No idea, so I defer to other bees who’d know more. But just wanted to share this since dh and I played around with it a bit before we bought our home: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
Nothing substitues professional advice of course, but it’s fun to fiddle with!
Post # 13
I put 10% down and now 7 years later I’m finally up to 20%. It’s nice to be done paying PMI! But ultimately PMI is only 0.5% or for me, like $40/month.
I would do the math on places in your price range and see what the mortgage/interest/insurance/taxes payments would be, compared to rent. If they’re similar, it’s totally worth it to buy. Even though a lot of your payment only goes to stupid interest, some of the payment goes to paying off the house, so you still are building equity in the home.
Post # 14
I bought my house 3 years ago on a USDA loan with no downpayment. It was definitely the right decision for us. I looked at it this way–I was paying about $1000/mo for rent on a 900 sq foot house. I purchased a 2400 sq ft house that better suited our lifestyle on nearly an acre in an amazing school district, with a $1300/mo payment. The difference between the two is about equal to how much I’m paying on my principle each month at the beginning of the loan…so even with PMI & taxes Iso even though the payments are more, the amount I’m “giving away” is equal.
It was also good timing for us…interest rates were record low still, and our housing market hadn’t rebounded yet. In the last 3 years, the value of our house has increased by about $25k on the conservative side. If we had waited to save 20% we would’ve paid way more for a lesser house.
Post # 15
We put about 7% down when all was said and done. It was more about timing than anything. Housing prices were rising with no end in sight, and interest rates were really low. So we talked to a lender that we trusted and he laid out options for us based on different amounts we were willing to put as our down payment. He laid out the timelines to pay off 20% and get rid of our PMI. It was seriously helpful and I recommend going to talk to someone about your options.
I also have not had a single friend that I’ve heard saved up a full 20% for their first home. 2nd home, sure.