Buying your first home without 20% down? Does it ever make sense?

posted 9 months ago in Finances
Post # 31
1451 posts
Bumble bee
  • Wedding: September 2015

I would go play around with an amortization calculator.  PMI isn’t the only consideration. You’d also be paying additional interest on the 20% you didn’t put down.  Over the life of a 30-year mortgage, that can translate into a lot of extra interest payment.  Especially the first few years when you are mostly paying only interest.  

Post # 32
2716 posts
Sugar bee
  • Wedding: September 2012

MrsBeck :  This is SUPER important and I think a lot of people fail to look at the overall life of the loan.

MrsGirlyGirl :  20% is ideal, but it’s definitely not a hard and fast rule. The best thing to do is sit down and run the numbers and do what makes the most sense for your budget and lifestyle. Just be sure that, in addition to calculating monthly expenses, you caculate the total cost of the loan over 5, 10, 20 years.

When we bought our first home, we had enough for 20% down but we also knew the house needed some work (new roof, possible new well and/or septic, new bathroom, some new appliances, etc.). So Darling Husband ran the numbers with varying downpayment amounts, PMI vs no PMI and figured out what our monthly expenses would be as well as how much we’d be spending over 5, 10, 15, 20, and 30 years. In the end we decided to put down something like 12-15% down, pay PMI for a few years, and have extra liquid cash on hand for any repairs we might need. PMI wasn’t going to cost us much more and we thought it worth it to have extra cash and peace of mind.

Just be sure that when you are calculating your monthly housing costs you include taxes, insurance, and maintence in addition to the mortgage and PMI. A lot of people try and directly compare rent to mortgage and you can’t do that. They forget that rent includes taxes, insurance, and maintenance. It’s usually a good idea to budget a few hundred dollars a month for general housing maintence. There might be some months you don’t have to do anything and others where your heater goes out and you need to spend $5000 to get a new one.

Also, don’t forget that you’ll need a few thousand dollars for closing costs (actual amounts depend on your area) and you’ll want to have another few thousand set aside for unexpected repairs or necessary purchases that are sure to crop up in the first few months. 

Good luck! Buying a home is scary but also super fun. =)

Post # 34
380 posts
Helper bee
  • Wedding: June 2015

We went with USDA and it worked out very well for us!  USDA is very generous with their distinctions in our area (we’re about 10 minutes away from downtown but are labled ‘rural’).  The housing market in our area is off the chain and we wanted to buy while we could…things keep rising and rising.

Post # 35
5803 posts
Bee Keeper
  • Wedding: May 2011

For us it definitely did, bought with 5% down in 2012 in an awesome neighborhood, interest rates were so low that we were willing to trade off and pay PMI. We sold it just over 5 years later for $100k more than we paid and we’re putting down 20% this time. Obviously 20% is ideal but in high COL areas it is so difficult to save it up.

Post # 36
1705 posts
Bumble bee
  • Wedding: July 2012

Yes, it can. We purchased our first home for 5% down (long story is we had just started saving for a 20% down, ended up buying waaaaay earlier than expected, so 5% it was). We got a 15 year loan at 3.12% interest, and now 3 years later we are selling for almost 100k more than we purchased it for, and between that and savings we will have 20% for a down payment on our new home that is being built and should be done in December. We bought as the market was going up, and we thought it was close to peaking 3 years ago but have been proven wrong. Our mortgage was only $200/month more than our rent, and PMI was $160/month, so we figured it made sense to buy because at least we would be building equity. 

Post # 37
947 posts
Busy bee
  • Wedding: November 2016

MrsGirlyGirl :  I personally wouldn’t do it , me and Darling Husband saved up as much as we could to put %20 down on our first home and we live in NJ where the prices are crazy! we cooked in more , went on less vacations and just did what we had to do , fortunately we lived with my parents for 2 years to save save save lol… But in the end im glad we did it , its bad enough how much interest we owe the bank i wouldn’t want a PMI for the first 10-15 years ect and fees.. 

Post # 39
1069 posts
Bumble bee

I’ve bought with zero, 3%, 5% down.  Plus don’t forget PMI is tax deductible!  Also there are 80/20 loans that avoid PMI but you pay a higher interest rate on your 20% mortgage and you have to have really good credit to qualify.

Post # 40
2041 posts
Buzzing bee

VintageGirl1020 :  Not everyone will have the option to live rent-free for 2 years in order to save up.

I think it just really depends on what you plan to do. Friends of ours bought with 3% down, did some work to the house and in a few years re-fi’d and the improvements they made to the house gave them enough equity to stop paying PMI and they dropped from a 30 year to 15 year mortgage. 

We put less than 20% down, but pay bi-weekly and pay extra towards the principle each month and have a 30 year loan that will be paid off in 17 years. We capatilized on very low interest rates when we bought and bought way below our budget in a fixer-upper. Between the improvements we’ve added (raises the value of the house) and paying extra, we’ve built a good deal of equity in our house in just a few years. 

You have to run the numbers and come up with a plan, but buying with less than 20% down can still be better than continuing to rent. 

Post # 41
1071 posts
Bumble bee

I bought a house, single, conventional loan with no PMI (which “REQUIRES” money down), with zero money down. Also asked the seller to pay closing costs (which is the usual). So in the end all I ended up paying was a tiny earnest fee of $200 which I obviously got back. Inspection was about $500… Apraisal ~$350. Odd but after it all I made money at closing so I probably ended up not even really paying the apraisal or inspection. Lol.

I am not a common scenario but I had amazing credit and fico at 26y/o… just… no money to put down. Rent is outrageous in comparison to mortgages. Rent was sucking me dry honestly. So when I bought a house, I was nervous and REALLLLY at risk (had no savings). I was quickly able to save with my house and pay on school loans. 


Post # 42
774 posts
Busy bee
  • Wedding: September 2016

MrsGirlyGirl :  I bought my first home through a ‘first time home buyers program’ and put zero percent down. Our current home we put 5% down, and accepted a higher interest rate instead of PMI. Talk to your mortgage broker about this to see if it makes sense for you. 

Mortgage rates are only going up so I would say buy as soon as you can. We bought our home less than a year ago at 4.125% interest and rates are now 4.625%. 

Post # 43
10 posts
  • Wedding: April 2010

It’s always better to pay a mortgage than rent, if you both agree on where you want to live and are willing to stay settled for awhile. But it your not on the same page as far as your drives and your lifestyle it might be better to rent.

That said. Don’t buy a house and plan a wedding at the same time. It will hit you hard and you will feel overwhelmed.

Post # 44
5302 posts
Bee Keeper

I have a real estate license, and I’ve owned multiple properties in the past.  Unless you’re planning on being in that house for the full duration of your loan [one and done] it makes no sense to leave yourself cash poor.  The difference it makes between the increased amount of the payment versus the cash left in your bank account for incidentals, repairs, upgrades, and general moving costs is huge.  Having that money on hand, or being cash poor.  That’s really the difference. I do not see interest rates going down any time soon [average over the past 5 years though].  Also-you have to take into consideration the age of what you’re buying.  How old is the roof? how old are the appliances and the furnace/ac unit(s).  If your inspector tells you “this is going to need replacing in xxx” number of years, it could hang on for another 5 or it could break/leak tomorrow.  Just don’t leave yourself cash poor when you purchase.



Post # 45
323 posts
Helper bee
  • Wedding: July 2018

MrsGirlyGirl :  I haven’t read comments from other bees but…it all depends. My Fiance and I are in the low-moderate income bracket so we qualify for USDA Rural Dev financing. We don’t have anywhere near 20% saved. I have said numerous times I wish I knew when I was 21 how important that down payment was. I would have been saving fiendishly!

That said, PMI isn’t that expensive. It depends on how long you want to wait to buy a home. My Fiance and I want to start a family (I’ll be 33 in August) and we don’t have 10 years to save a down payment of 40-50k. That’s a huge amount of money for us. We are doing 0 down. It may not make us the most attractive in the current housing market, but it’s the right decision for us. 

The hard part has been the current market. We’re house-shopping and have made 2 offers but lost both of them (the seller took another offer each time). The market is so competitive. You have to prepare for that as well. It sucks 🙁

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