10% Mortgage Down payment

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jmiles
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10% Mortgage Down payment

Post by jmiles » Sun Feb 07, 2016 4:04 pm

My wife and I are planning on purchasing a home about a year from now. We are debt free and should be able to save approximately 10% (in addition to an emergency fund). Will it be fairly easy for us to get a 30 year conventional mortgage for a house that's about 2x-2.5x our annual income with only a 10% down payment? How about a 5% down payment (in case something comes up between now and then)? Obviously 20% is ideal, but we're ready to get out of our apartment and we're hoping our lack of debt will help us with a lower down payment. Our plan is to get a 30 year mortgage primarily because my wife likes the thought of a lower required payment, but we will most likely pay it like a 15 year. We both have credit scores that are currently around 800. Thanks for any help you can provide!

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jfn111
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Re: 10% Mortgage Down payment

Post by jfn111 » Sun Feb 07, 2016 4:23 pm

FHA loan should be around 3.5%
Conventional can be had for 5% with a good credit score.
Bogleheads talk about 20% down payments but most people, in the real world, don't have that much to put down.

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FiveK
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Re: 10% Mortgage Down payment

Post by FiveK » Sun Feb 07, 2016 4:31 pm

You might ask those questions to a few local and national mortgage loan providers. At this point you have time on your side - good for you to think ahead. If you wait until you find an appealing house, you might settle for the first loan you can find....

Compare your costs with and without PMI (and find out from each lender where breakpoints occur), then decide what is worthwhile to you.

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Meaty
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Re: 10% Mortgage Down payment

Post by Meaty » Sun Feb 07, 2016 4:47 pm

Don't due the FHA 3.5%. Last I knew it had permanent PMI
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Toons
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Re: 10% Mortgage Down payment

Post by Toons » Sun Feb 07, 2016 4:49 pm

Obviously 20% is ideal
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NRI
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Re: 10% Mortgage Down payment

Post by NRI » Sun Feb 07, 2016 5:09 pm

It depends on the price of the home and your areas loan limits.

FHA is generally the most desirable but their loan limits are usually much less, meaning you'd have to come up with the difference of the max loan amount and the sales price of the home as a downpayment. (if the home is over your areas limit) If you don't plan on making it a permanent residence then a 7/1ARM is a great thing to look into.

Your credit score is more than enough. 740 opens just about every door for you.

Where I sell homes, the Conventional loan limit is 417K with good credit you could do 5%, but the price of the home would need to be no more than 439K, otherwise you'd need a larger down payment to avoid going into jumbo loan territory (loans over 417k in my area).

You'd need to have your credit pulled and to show the big 5 (2yr tax returns, 2months of bank statements, and 1 month of paystubs) in order for your debt to income to be assessed.

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Hodor
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Re: 10% Mortgage Down payment

Post by Hodor » Sun Feb 07, 2016 5:10 pm

If you have good credit it should not be a problem, particularly with your relatively high income compared to the house's value. Most people do not put down the full 20%, particularly on a first house. I would get the mortgage with 10% if you are ready to move and then pay down the mortgage as fast as possible to get rid of the PMI.

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llama
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Re: 10% Mortgage Down payment

Post by llama » Sun Feb 07, 2016 5:33 pm

Hodor wrote:Most people do not put down the full 20%, particularly on a first house. I would get the mortgage with 10% if you are ready to move and then pay down the mortgage as fast as possible to get rid of the PMI.


This is exactly what we did and it worked out well for us.

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GerryL
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Re: 10% Mortgage Down payment

Post by GerryL » Sun Feb 07, 2016 5:36 pm

Are you eligible for a VA loan? I was able to get a 10% down no PMI VA loan in my state. That was a long time ago, but you might want to check into different programs for which you or your spouse might be eligible.

jjface
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Re: 10% Mortgage Down payment

Post by jjface » Sun Feb 07, 2016 5:59 pm

Look at credit unions too who may give you a better deal with a lower down payment. My Credit union let me take out a 30 year with 5% down and no pmi. Same interest rate as with a 20% down. Though that was back in 2009 and times have changed a bit.

Br careful with the desire for a lower payment. Make sure there is a good reason - your budget is tight and you need flexibility for example. You are giving up a lower rate for that flexibility. If I could go back in time I'd choose a 15 year mortgage. If I had done that it would be half done by now instead of still having 85% left.

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steadyeddy
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Re: 10% Mortgage Down payment

Post by steadyeddy » Sun Feb 07, 2016 6:06 pm

I don't think the banks will be impressed that you're debt free with a smaller down payment. They would probably rather see the full 20% down with a higher debt-to-income (since a house 2.5x salary won't be stretching affordability anyway).

In other words, check whether paying PMI is really cheaper than paying a little extra interest on your debt while you pay the minimums and put together a 20% down payment on your house. Particularly with FHA, I suspect paying PMI is the most expensive option available to you.

alfaspider
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Re: 10% Mortgage Down payment

Post by alfaspider » Sun Feb 07, 2016 6:37 pm

An 80/10/10 may be an option. Assuming competitive pricing, It is better than paying PMI because you can free yourself from it as soon as you come up with the extra cash- no appraisal required and no minimum time period.

I did an 80/10/10 in 2013. Since there was rapid appreciation, I had 20% equity after a year and just refinanced away the second mortgage (which had a higher interest rate).

kjvmartin
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Re: 10% Mortgage Down payment

Post by kjvmartin » Sun Feb 07, 2016 7:57 pm

Consider "Single Premium PMI"

We paid around $1600 for PMI up front on $165,000 house. You could roll it into the mortgage or pay it as part of the closing costs.

I had never heard of this, but it was much better than the cost of PMI over the course of the loan.

MikeZ
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Re: 10% Mortgage Down payment

Post by MikeZ » Sun Feb 07, 2016 9:10 pm

I did 10% down and was able to re-appraise my house within 18 months to get to 78% LTV to drop the PMI. I'm glad based on this that I didn't do single pay PMI!

Having trac homes where pulling comps is super easy really helped with that process.

I might also get come flack on this board, but consider the penilty free $10k retirement withdrawal to help with the down payment. The effective PMI savings in some cases can make a compelling case to do it. I did it, and am glad I did.

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dm200
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Re: 10% Mortgage Down payment

Post by dm200 » Sun Feb 07, 2016 9:20 pm

1. Whether it makes sense or not, I think it may make more sense to have a modest amount of debt (say car payment) and have more for the home down payment.

2. if you have not already donw so, check out your credit and credit score. If it is, for some reason, low - work on making it look better.

3. Some credit unions are advertising 100% (or near 100%) mortgage financing.

Johno
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Re: 10% Mortgage Down payment

Post by Johno » Mon Feb 08, 2016 11:10 am

steadyeddy wrote:I don't think the banks will be impressed that you're debt free with a smaller down payment. They would probably rather see the full 20% down with a higher debt-to-income (since a house 2.5x salary won't be stretching affordability anyway).

In other words, check whether paying PMI is really cheaper than paying a little extra interest on your debt while you pay the minimums and put together a 20% down payment on your house. Particularly with FHA, I suspect paying PMI is the most expensive option available to you.

Yes from mortgage lender's POV it's obvious. Assuming the borrower has the same net balance sheet position either way, of course the mortgage lender would rather you put a 20% cushion rather than 10% into the house in case they have to foreclose and sell the house, and have you owe the other 10% to somebody else not them. They are going to make up that difference in equity security with additional security like mortgage insurance.

From borrower's POV, under the same assumption of all else equal, it's as you say a matter of comparing mortgage insurance cost to what you'd pay on other debt to free up 20% for the down payment.

But of course more conservative borrowers are going to say all else shouldn't be equal and the person should save up more and/or get a cheaper place in order to afford 20% down w/o debt elsewhere. They might also though project their own more secure financial situation onto others.

riverguy
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Re: 10% Mortgage Down payment

Post by riverguy » Mon Feb 08, 2016 3:58 pm

jjface wrote:Look at credit unions too who may give you a better deal with a lower down payment. My Credit union let me take out a 30 year with 5% down and no pmi. Same interest rate as with a 20% down. Though that was back in 2009 and times have changed a bit.

Br careful with the desire for a lower payment. Make sure there is a good reason - your budget is tight and you need flexibility for example. You are giving up a lower rate for that flexibility. If I could go back in time I'd choose a 15 year mortgage. If I had done that it would be half done by now instead of still having 85% left.


This makes little sense to me. The difference between a 15 year and 30 year rate is not all that significant. Having a lower payment gives you a lot of comfort should you run into financial issues. If you want to pay your loan down faster, just pay more principal each month...

dsmil
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Re: 10% Mortgage Down payment

Post by dsmil » Mon Feb 08, 2016 4:07 pm

You shouldn't have any problems getting a mortgage if your experience is anywhere close to mine from a few years ago. We came in with a lot of student loans, could only put 5% down, our credit scores were in the low 700's, and the bank wanted to give us far too much money.

remomnyc
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Re: 10% Mortgage Down payment

Post by remomnyc » Mon Feb 08, 2016 4:35 pm

riverguy wrote:
jjface wrote:Look at credit unions too who may give you a better deal with a lower down payment. My Credit union let me take out a 30 year with 5% down and no pmi. Same interest rate as with a 20% down. Though that was back in 2009 and times have changed a bit.

Br careful with the desire for a lower payment. Make sure there is a good reason - your budget is tight and you need flexibility for example. You are giving up a lower rate for that flexibility. If I could go back in time I'd choose a 15 year mortgage. If I had done that it would be half done by now instead of still having 85% left.


This makes little sense to me. The difference between a 15 year and 30 year rate is not all that significant. Having a lower payment gives you a lot of comfort should you run into financial issues. If you want to pay your loan down faster, just pay more principal each month...


The difference between a 15-yr and a 30-yr are very significant. Assuming $410k mortgage and 5% on the 30-year and 4% on the 15-yr, the monthly p&i are $2,201 and $3,033 respectively. Unless your income is highly secure, or you have extra liquidity, I typically recommend the 30-year with its smaller payments as a cushion against life's downsides. As correctly pointed out above, you can always pay more to pay off your loan quicker, but with the 15-year, you can't pay less when your income is reduced.

psystal
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Re: 10% Mortgage Down payment

Post by psystal » Mon Feb 08, 2016 4:44 pm

jmiles wrote:My wife and I are planning on purchasing a home about a year from now. We are debt free and should be able to save approximately 10% (in addition to an emergency fund). Will it be fairly easy for us to get a 30 year conventional mortgage for a house that's about 2x-2.5x our annual income with only a 10% down payment? How about a 5% down payment (in case something comes up between now and then)? Obviously 20% is ideal, but we're ready to get out of our apartment and we're hoping our lack of debt will help us with a lower down payment. Our plan is to get a 30 year mortgage primarily because my wife likes the thought of a lower required payment, but we will most likely pay it like a 15 year. We both have credit scores that are currently around 800. Thanks for any help you can provide!


Are you in what might be considered a rural area? If so, USDA loans are the absolute best for low down payments.

jjface
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Re: 10% Mortgage Down payment

Post by jjface » Mon Feb 08, 2016 9:00 pm

remomnyc wrote:
riverguy wrote:
jjface wrote:Look at credit unions too who may give you a better deal with a lower down payment. My Credit union let me take out a 30 year with 5% down and no pmi. Same interest rate as with a 20% down. Though that was back in 2009 and times have changed a bit.

Br careful with the desire for a lower payment. Make sure there is a good reason - your budget is tight and you need flexibility for example. You are giving up a lower rate for that flexibility. If I could go back in time I'd choose a 15 year mortgage. If I had done that it would be half done by now instead of still having 85% left.


This makes little sense to me. The difference between a 15 year and 30 year rate is not all that significant. Having a lower payment gives you a lot of comfort should you run into financial issues. If you want to pay your loan down faster, just pay more principal each month...


The difference between a 15-yr and a 30-yr are very significant. Assuming $410k mortgage and 5% on the 30-year and 4% on the 15-yr, the monthly p&i are $2,201 and $3,033 respectively. Unless your income is highly secure, or you have extra liquidity, I typically recommend the 30-year with its smaller payments as a cushion against life's downsides. As correctly pointed out above, you can always pay more to pay off your loan quicker, but with the 15-year, you can't pay less when your income is reduced.


On the flip side with your mortgage examples-
a) 30 year mortgage with $2201 - total interest $382,348
b) 30 year mortgage with extra payments to make $3033 - total interest $194,259
c) 15 year mortgage with $3033 - total interest $135,890

Difference between the 30 year and 15 year with the exact same payments = $58,369! or nearly 43% more. Hardly insignificant.

Just something to consider as there are pros and cons on either side. The lower payment gives you flexibility and may allow you to utilize more of your tax advantaged space for example. Or you may not be able to afford to buy the house if you had to have a higher payment but housing was a priority of yours.

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F150HD
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Re: 10% Mortgage Down payment

Post by F150HD » Mon Feb 08, 2016 9:37 pm

jmiles wrote:My wife and I are planning on purchasing a home about a year from now. We are debt free and should be able to save approximately 10% (in addition to an emergency fund). Will it be fairly easy for us to get a 30 year conventional mortgage for a house that's about 2x-2.5x our annual income with only a 10% down payment? How about a 5% down payment (in case something comes up between now and then)? Obviously 20% is ideal, but we're ready to get out of our apartment and we're hoping our lack of debt will help us with a lower down payment. Our plan is to get a 30 year mortgage primarily because my wife likes the thought of a lower required payment, but we will most likely pay it like a 15 year. We both have credit scores that are currently around 800. Thanks for any help you can provide!


PMI s*cks, and if the market dives again like it did in 2008ish, home values drop and you can get stuck w/ it.

Have read some take out a 2nd loan to put the 20% down.

Credit unions- I was pre-approved that way when buying my home, but Wells Fargo bought the loan shortly after closing (normal I guess) and I had PMI, so....could be a trap to fall into there.

Regardless, complete waste of $100 a month...and "I" had to pay for the appraisal to get rid of it. Never again.

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DiscoBunny1979
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Re: 10% Mortgage Down payment

Post by DiscoBunny1979 » Mon Feb 08, 2016 9:59 pm

Hodor wrote:Most people do not put down the full 20%,


I don't know what most people you are referring to. In my opinion, 20% is the minimum one should put down on a house. And, if one can not afford a 15 year mortgage and are considering a 30 year mortgage to double down on it, then they really can't afford the house. What happens if the roof needs repairing/replacing or the kitchen needs new appliances, or some other major financial issue occurs? There needs to not only be an 'emergency' fund for emergencies, but a house fund for those repair/replace projects.

Just because one can get a VA loan for $1 dollar down (or whatever down it is) or an FHA loan for only 3.5% down, or a bank loan for only 10% down, doesn't mean it's the best thing to do. The want to move out of an apartment is understandable . . . but it is not a need. Home ownership is not a need, or a Presidential dictate that we should be an "ownership society". That kind of thinking, with easy money, is what got us into financial crisis. I would very carefully research your Needs versus your Wants to determine if saving an additional 10% will be better than making the decision based on emotions - such as your Wife that wants lower payments, just because they are lower. Having lower payments doesn't mean you're saving money. And once you have 30 year mortgage, there is no guarantee that you will actually make or be able to afford to turn that into a 15 year mortgage. Just like Hodor believes most people don't put the full 20% down, I don't believe that most people that get into a 30 year mortgage can maintain a strategy to double down on a loan consistently over 15 years - because ----- happens.

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Hodor
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Re: 10% Mortgage Down payment

Post by Hodor » Mon Feb 08, 2016 10:22 pm

DiscoBunny1979 wrote:
Hodor wrote:Most people do not put down the full 20%,


I don't know what most people you are referring to. In my opinion, 20% is the minimum one should put down on a house. And, if one can not afford a 15 year mortgage and are considering a 30 year mortgage to double down on it, then they really can't afford the house. What happens if the roof needs repairing/replacing or the kitchen needs new appliances, or some other major financial issue occurs? There needs to not only be an 'emergency' fund for emergencies, but a house fund for those repair/replace projects.

Just because one can get a VA loan for $1 dollar down (or whatever down it is) or an FHA loan for only 3.5% down, or a bank loan for only 10% down, doesn't mean it's the best thing to do. The want to move out of an apartment is understandable . . . but it is not a need. Home ownership is not a need, or a Presidential dictate that we should be an "ownership society". That kind of thinking, with easy money, is what got us into financial crisis. I would very carefully research your Needs versus your Wants to determine if saving an additional 10% will be better than making the decision based on emotions - such as your Wife that wants lower payments, just because they are lower. Having lower payments doesn't mean you're saving money. And once you have 30 year mortgage, there is no guarantee that you will actually make or be able to afford to turn that into a 15 year mortgage. Just like Hodor believes most people don't put the full 20% down, I don't believe that most people that get into a 30 year mortgage can maintain a strategy to double down on a loan consistently over 15 years - because ----- happens.


I'm talking about most people as in most real people in America. It's clear that you have an intense disdain for debt but that doesn't change the reality that most first time homebuyers do not put 20% down on a mortgage.

And as for your points about what happens if there is a home emergency, putting less money down or getting a longer loan term make you more, not less able to deal with those emergencies since you will have more liquid assets and more cash flow. High down payments are good for the bank; they may or may not be better for the borrower depending on the terms and individual circumstances.

Big Dog
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Re: 10% Mortgage Down payment

Post by Big Dog » Mon Feb 08, 2016 10:40 pm

agree, that PMI is a waste of good money. See if the lender will give you an 80% loan + 10% second to cover the rest of the down payment

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Watty
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Re: 10% Mortgage Down payment

Post by Watty » Mon Feb 08, 2016 10:44 pm

jmiles wrote:We are debt free and should be able to save approximately 10% (in addition to an emergency fund).


I you have paid off cars that have significant value it might make sense to get car loans if that cash would be enough to not pay PMI and you could make both the house and car payments.

You would of course want to check with a lender to make sure that debt does not cause problems with your loan application. You might need to do that well before you apply for the mortage.

Johno
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Re: 10% Mortgage Down payment

Post by Johno » Tue Feb 09, 2016 11:21 am

Hodor wrote:
DiscoBunny1979 wrote:
Hodor wrote:Most people do not put down the full 20%,


I don't know what most people you are referring to.


I'm talking about most people as in most real people in America. It's clear that you have an intense disdain for debt but that doesn't change the reality that most first time homebuyers do not put 20% down on a mortgage.

And as for your points about what happens if there is a home emergency, putting less money down or getting a longer loan term make you more, not less able to deal with those emergencies since you will have more liquid assets and more cash flow. High down payments are good for the bank; they may or may not be better for the borrower depending on the terms and individual circumstances.

Realtytrac figures from last year said the average down payment on a house was around 15%, around 18% for conventional (non FHA, etc) loans. That's apparently among homes bought with a mortgage. Around 25% are bought with cash (that number was substantially higher during the housing rebound, lots of investors, now it's gone back toward the longer term average of around 1/4). 'First time' would probably skew it quite a bit away from cash and toward low % down payment though.

A lot of people put down a lot of money for houses, a lot of people put down little. I don't think it actually matters that much what 'most' do, and one side of the argument is pretty much saying they don't care anyway, rather 'in my opinion people should put down X%'. And it depends on what you assume is the constant. If you assume a particular house and personal balance sheet is the constant, then you're correct that the less you put down the more you'll have available to deal with financial emergencies, the opposite of what the other poster said. But that person is probably assuming either a) the extra money not put into the house is spent not saved for emergencies (which 'a lot of people' also do), or b) the person could instead have bought a smaller home and used the same number of $'s to put down a higher %, or not bought any home until they'd saved more.

corysold
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Re: 10% Mortgage Down payment

Post by corysold » Tue Feb 09, 2016 11:35 am

I don't think the % down matters as much as the total amount borrowed. If you can afford to borrow $200,000, then you can afford a $200,000 house with 0 down or a $240,000 house with 20% down.

As long as you aren't getting a bigger mortgage than you can afford to pay, you may actually be better off with a smaller down payment, as the house will be less expensive, taxes will be less, maintenance may be less, etc.

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jimb_fromATL
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Re: 10% Mortgage Down payment

Post by jimb_fromATL » Tue Feb 09, 2016 1:46 pm

alfaspider wrote:An 80/10/10 may be an option. Assuming competitive pricing, It is better than paying PMI because you can free yourself from it as soon as you come up with the extra cash- no appraisal required and no minimum time period.

I did an 80/10/10 in 2013. Since there was rapid appreciation, I had 20% equity after a year and just refinanced away the second mortgage (which had a higher interest rate).


As a matter of curiosity, what was your rate on the second mortgage? Was it a fixed rate, or ARM, and for how long?

jimb

riverguy
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Re: 10% Mortgage Down payment

Post by riverguy » Tue Feb 09, 2016 8:23 pm

jjface wrote:
remomnyc wrote:
riverguy wrote:
jjface wrote:Look at credit unions too who may give you a better deal with a lower down payment. My Credit union let me take out a 30 year with 5% down and no pmi. Same interest rate as with a 20% down. Though that was back in 2009 and times have changed a bit.

Br careful with the desire for a lower payment. Make sure there is a good reason - your budget is tight and you need flexibility for example. You are giving up a lower rate for that flexibility. If I could go back in time I'd choose a 15 year mortgage. If I had done that it would be half done by now instead of still having 85% left.


This makes little sense to me. The difference between a 15 year and 30 year rate is not all that significant. Having a lower payment gives you a lot of comfort should you run into financial issues. If you want to pay your loan down faster, just pay more principal each month...


The difference between a 15-yr and a 30-yr are very significant. Assuming $410k mortgage and 5% on the 30-year and 4% on the 15-yr, the monthly p&i are $2,201 and $3,033 respectively. Unless your income is highly secure, or you have extra liquidity, I typically recommend the 30-year with its smaller payments as a cushion against life's downsides. As correctly pointed out above, you can always pay more to pay off your loan quicker, but with the 15-year, you can't pay less when your income is reduced.


On the flip side with your mortgage examples-
a) 30 year mortgage with $2201 - total interest $382,348
b) 30 year mortgage with extra payments to make $3033 - total interest $194,259
c) 15 year mortgage with $3033 - total interest $135,890

Difference between the 30 year and 15 year with the exact same payments = $58,369! or nearly 43% more. Hardly insignificant.

Just something to consider as there are pros and cons on either side. The lower payment gives you flexibility and may allow you to utilize more of your tax advantaged space for example. Or you may not be able to afford to buy the house if you had to have a higher payment but housing was a priority of yours.


Who's paying 5% on a 30 year these days? Lets look at WFC. They've got 3.75% for 30 year and 3.125% for a 15 year.

Using realistic rates changes the numbers to:

a) 30 year mortgage with $1898 - total interest $273,558
b) 30 year mortgage with extra payments to make $2753 - total interest $134,876
c) 15 year mortgage with $2856 - total interest $104,097

$31,000. ~$2,000 a year if you spread it over the life of the 15 year loan. Not that much especially when you are talking a $410,000 loan.

PLUS the interest is deductible, if you itemize (which I assume someone taking a $410k loan does), so depending on tax bracket and state, it's really about a third less or so. Ends up being $1,300/year. Each person would have to decide if that's worth it to them. Certainly seems worth it to me. Given the state of the US and world economy, I wouldn't want to lock myself into something more than I had to especially with such a minor difference.

alfaspider
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Re: 10% Mortgage Down payment

Post by alfaspider » Sun Feb 14, 2016 3:58 pm

jimb_fromATL wrote:
alfaspider wrote:An 80/10/10 may be an option. Assuming competitive pricing, It is better than paying PMI because you can free yourself from it as soon as you come up with the extra cash- no appraisal required and no minimum time period.

I did an 80/10/10 in 2013. Since there was rapid appreciation, I had 20% equity after a year and just refinanced away the second mortgage (which had a higher interest rate).


As a matter of curiosity, what was your rate on the second mortgage? Was it a fixed rate, or ARM, and for how long?

jimb


The second was at 5% fixed with a 15-year term. At the time, 30-year fixed were running around 4.2%.

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villars
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Re: 10% Mortgage Down payment

Post by villars » Sun Feb 14, 2016 10:06 pm

What is your current rent compared to anticipated mortgage payment with 10% down?

Unless your rent is significantly higher, I recommend saving till you get the 20% down. It is a lot harder to save once you own a home because of repairs, buying furniture , remodeling etc.

Right now both of you have a huge incentive to save : buying a house. Once you own it, the incentive to get rid of PMI may not be as strong, especially for your wife.

At least that was my personal experience.

DVMResident
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Re: 10% Mortgage Down payment

Post by DVMResident » Sun Feb 14, 2016 11:39 pm

villars wrote:What is your current rent compared to anticipated mortgage payment with 10% down?

Unless your rent is significantly higher, I recommend saving till you get the 20% down. It is a lot harder to save once you own a home because of repairs, buying furniture , remodeling etc.

Right now both of you have a huge incentive to save : buying a house. Once you own it, the incentive to get rid of PMI may not be as strong, especially for your wife.

At least that was my personal experience.


FWIW, our lender allowed us to get rid of the PMI via market appreciation and an appraisal.
If you're going to put 10% down, pay close attention to the details of removing the PMI. The requirements vary a lot.

Leemiller
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Re: 10% Mortgage Down payment

Post by Leemiller » Mon Feb 15, 2016 1:58 pm

riverguy wrote:
jjface wrote:
remomnyc wrote:
riverguy wrote:
jjface wrote:Look at credit unions too who may give you a better deal with a lower down payment. My Credit union let me take out a 30 year with 5% down and no pmi. Same interest rate as with a 20% down. Though that was back in 2009 and times have changed a bit.

Br careful with the desire for a lower payment. Make sure there is a good reason - your budget is tight and you need flexibility for example. You are giving up a lower rate for that flexibility. If I could go back in time I'd choose a 15 year mortgage. If I had done that it would be half done by now instead of still having 85% left.


This makes little sense to me. The difference between a 15 year and 30 year rate is not all that significant. Having a lower payment gives you a lot of comfort should you run into financial issues. If you want to pay your loan down faster, just pay more principal each month...


The difference between a 15-yr and a 30-yr are very significant. Assuming $410k mortgage and 5% on the 30-year and 4% on the 15-yr, the monthly p&i are $2,201 and $3,033 respectively. Unless your income is highly secure, or you have extra liquidity, I typically recommend the 30-year with its smaller payments as a cushion against life's downsides. As correctly pointed out above, you can always pay more to pay off your loan quicker, but with the 15-year, you can't pay less when your income is reduced.


On the flip side with your mortgage examples-
a) 30 year mortgage with $2201 - total interest $382,348
b) 30 year mortgage with extra payments to make $3033 - total interest $194,259
c) 15 year mortgage with $3033 - total interest $135,890

Difference between the 30 year and 15 year with the exact same payments = $58,369! or nearly 43% more. Hardly insignificant.

Just something to consider as there are pros and cons on either side. The lower payment gives you flexibility and may allow you to utilize more of your tax advantaged space for example. Or you may not be able to afford to buy the house if you had to have a higher payment but housing was a priority of yours.


Who's paying 5% on a 30 year these days? Lets look at WFC. They've got 3.75% for 30 year and 3.125% for a 15 year.

Using realistic rates changes the numbers to:

a) 30 year mortgage with $1898 - total interest $273,558
b) 30 year mortgage with extra payments to make $2753 - total interest $134,876
c) 15 year mortgage with $2856 - total interest $104,097

$31,000. ~$2,000 a year if you spread it over the life of the 15 year loan. Not that much especially when you are talking a $410,000 loan.

PLUS the interest is deductible, if you itemize (which I assume someone taking a $410k loan does), so depending on tax bracket and state, it's really about a third less or so. Ends up being $1,300/year. Each person would have to decide if that's worth it to them. Certainly seems worth it to me. Given the state of the US and world economy, I wouldn't want to lock myself into something more than I had to especially with such a minor difference.


Agree. And inflation will eat away at the $1,300 a year over time so the total difference isn't in today's dollars.

MarkBarb
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Re: 10% Mortgage Down payment

Post by MarkBarb » Mon Feb 15, 2016 2:12 pm

If you are going to put 10% down, compare the cost of PMI with taking out a secondary mortgage. We did the math back in the 90s and it worked better for us to do that.

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Re: 10% Mortgage Down payment

Post by jmiles » Tue Mar 01, 2016 10:07 am

A simply solution would be to walk into a place and see what they'd be willing to do for us. Is this something a company would do? i.e., If we walked in and said we would like to buy an $XXX,XXX cost house, put $XX,XXX down, we make $XXX,XXX, have no debt, and have a credit score of XXX would they be able to fairly quickly give us some rough rates and let us know if our plan is okay. We wouldn't be looking for anything binding, but rather a rough estimate. My guess is something this simply isn't possible since they might view it as a waste of their time, but I figured I'd ask.

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Re: 10% Mortgage Down payment

Post by stoptothink » Tue Mar 01, 2016 10:40 am

Hodor wrote:
DiscoBunny1979 wrote:
Hodor wrote:Most people do not put down the full 20%,


I don't know what most people you are referring to. In my opinion, 20% is the minimum one should put down on a house. And, if one can not afford a 15 year mortgage and are considering a 30 year mortgage to double down on it, then they really can't afford the house. What happens if the roof needs repairing/replacing or the kitchen needs new appliances, or some other major financial issue occurs? There needs to not only be an 'emergency' fund for emergencies, but a house fund for those repair/replace projects.

Just because one can get a VA loan for $1 dollar down (or whatever down it is) or an FHA loan for only 3.5% down, or a bank loan for only 10% down, doesn't mean it's the best thing to do. The want to move out of an apartment is understandable . . . but it is not a need. Home ownership is not a need, or a Presidential dictate that we should be an "ownership society". That kind of thinking, with easy money, is what got us into financial crisis. I would very carefully research your Needs versus your Wants to determine if saving an additional 10% will be better than making the decision based on emotions - such as your Wife that wants lower payments, just because they are lower. Having lower payments doesn't mean you're saving money. And once you have 30 year mortgage, there is no guarantee that you will actually make or be able to afford to turn that into a 15 year mortgage. Just like Hodor believes most people don't put the full 20% down, I don't believe that most people that get into a 30 year mortgage can maintain a strategy to double down on a loan consistently over 15 years - because ----- happens.


I'm talking about most people as in most real people in America. It's clear that you have an intense disdain for debt but that doesn't change the reality that most first time homebuyers do not put 20% down on a mortgage.


https://www.yahoo.com/realestate/blogs/ ... tml?ref=gs There isn't a state in the country where the average home downpayment is 20%. I think nationally <20% actually do. Not sure what the point of Discobunny's debt rant was; we put 20% down and are making double payments on a 15yr mortgage, but that doesn't change the clear statistics that most homebuyers put little down and push the limits of what they can afford.

moneyman119
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Re: 10% Mortgage Down payment

Post by moneyman119 » Tue Mar 01, 2016 3:23 pm

I am in the process of closing a loan with Quicken and they pay the PMI for you with 5% equity.

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Re: 10% Mortgage Down payment

Post by jimb_fromATL » Tue Mar 01, 2016 3:30 pm

moneyman119 wrote:I am in the process of closing a loan with Quicken and they pay the PMI for you with 5% equity.


Well, they don't exactly pay it for free. The up-front PMI premium is either rolled into the loan balance or hidden in a higher rate that will give them enough extra interest to make up for the extra risk to them or else pay for the PMI if they're buying it for themselves.

Still, it could be better to pay for PMI or pay a little higher rate rather than continue to pay a lot of rent while trying to save up a 20% down payement, especially if the price of homes is going up rapidly.

jimb

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Re: 10% Mortgage Down payment

Post by joelly » Tue Mar 01, 2016 6:01 pm

PMI is not easy to get rid of. Your lender has to put a rider in the loan commitment agreement for you to be able to get rid of it later. Also, you need to hire an appraiser to do this. Just paying extra to the principal is not enough.

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Re: 10% Mortgage Down payment

Post by jimb_fromATL » Tue Mar 01, 2016 7:39 pm

joelly wrote:PMI is not easy to get rid of. Your lender has to put a rider in the loan commitment agreement for you to be able to get rid of it later. Also, you need to hire an appraiser to do this. Just paying extra to the principal is not enough.


On most conforming loans lenders are required by law by the Home Owner's Protection Act of 1998 to cancel PMI when the debt reaches 78% of the original purchase price according to the amortization schedule.

While it must be dropped at 78%, homeowners may request that it be dropped when the balance has dropped to 80% of the original purchase price. Since PMI is provided as a condition of granting the loan and protects the lender, and is essentially an insurance premium there is no financial incentive for a lender to drop the PMI. So for the 80% request they typically require that the homeowner pay for an appraisal to prove that it has not dropped in value, which you have to for it whether the home appraises for enough or not.

jimb

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Re: 10% Mortgage Down payment

Post by 4th and Inches » Wed Mar 02, 2016 10:37 am

Look into an 80-10-10 loan. The interest rate on the second loan will typically be the prime rate + about 2%.

Also, do what is best for you. Don't pay too much attention to the people on here saying you should have at LEAST 20% down and then lock yourself into a 15 year mortgage.

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Re: 10% Mortgage Down payment

Post by Chadnudj » Wed Mar 02, 2016 10:46 am

jmiles wrote:My wife and I are planning on purchasing a home about a year from now. We are debt free and should be able to save approximately 10% (in addition to an emergency fund). Will it be fairly easy for us to get a 30 year conventional mortgage for a house that's about 2x-2.5x our annual income with only a 10% down payment? How about a 5% down payment (in case something comes up between now and then)? Obviously 20% is ideal, but we're ready to get out of our apartment and we're hoping our lack of debt will help us with a lower down payment. Our plan is to get a 30 year mortgage primarily because my wife likes the thought of a lower required payment, but we will most likely pay it like a 15 year. We both have credit scores that are currently around 800. Thanks for any help you can provide!


My wife and I were in the same situation as you (same income-to-mortgage ratio, same credit scores, similarly debt free, etc.), and had no problem getting a 30 year mortgage with a 10% down payment. And while that's not the traditional "Boglehead" thing to do (traditional Bogleheads would wait until you had 20% down payment), it actually saved us at least $500 a month versus renting a similar place in our location (although I suppose saving money on housing is the proper Boglehead thing to do), even factoring in PMI (and that's without factoring in the tax deductions or the fact that we're building equity every month or the fact that at least right now housing prices are increasing steadily albeit not too rapidly in our area or the fact that my wife is MUCH happier being an owner than a renter).

So, I'd say you'll have very little problem finding a mortgage. Shop around, and get a good rate/deal.

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Re: 10% Mortgage Down payment

Post by joelly » Wed Mar 02, 2016 2:45 pm

jimb_fromATL wrote:
joelly wrote:PMI is not easy to get rid of. Your lender has to put a rider in the loan commitment agreement for you to be able to get rid of it later. Also, you need to hire an appraiser to do this. Just paying extra to the principal is not enough.


On most conforming loans lenders are required by law by the Home Owner's Protection Act of 1998 to cancel PMI when the debt reaches 78% of the original purchase price according to the amortization schedule.

While it must be dropped at 78%, homeowners may request that it be dropped when the balance has dropped to 80% of the original purchase price. Since PMI is provided as a condition of granting the loan and protects the lender, and is essentially an insurance premium there is no financial incentive for a lender to drop the PMI. So for the 80% request they typically require that the homeowner pay for an appraisal to prove that it has not dropped in value, which you have to for it whether the home appraises for enough or not.

jimb


Interesting! This isn't what the Lender informed me. He said I have to hire an appraisal to get the PMI dropped from monthly payment. He said it is not enough to pay down the principal, we have to have the property appraised to get rid of it. Our lender is Prospect Mortgage. I'm in the process of buying a new construction home in Los Angeles, California. This is the preferred lender of the developer.

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Re: 10% Mortgage Down payment

Post by guymadison » Wed Mar 02, 2016 3:27 pm

Buy it with 10-20% down on a 30 year mortgage, live in it for 2 years then buy another home and rent the current home you are in. Then in another 2 years do the same thing and build up real estate income.

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Re: 10% Mortgage Down payment

Post by jimb_fromATL » Wed Mar 02, 2016 8:28 pm

joelly wrote:
Interesting! This isn't what the Lender informed me. He said I have to hire an appraisal to get the PMI dropped from monthly payment. He said it is not enough to pay down the principal, we have to have the property appraised to get rid of it. Our lender is Prospect Mortgage. I'm in the process of buying a new construction home in Los Angeles, California. This is the preferred lender of the developer.


That's what the text of the HPA at the above link says. You can ask to drop the PMI if you've paid it down to 80% faster than normal, but it's your responsibility to provide acceptable proof (an acceptable appraisal) to show that it has not dropped in value.

They have to go by the original value only when the 78% point is reach in the original amortization schedule.

jimb

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Fieldsy1024
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Re: 10% Mortgage Down payment

Post by Fieldsy1024 » Wed Mar 02, 2016 10:27 pm

jimb_fromATL wrote:
joelly wrote:PMI is not easy to get rid of. Your lender has to put a rider in the loan commitment agreement for you to be able to get rid of it later. Also, you need to hire an appraiser to do this. Just paying extra to the principal is not enough.


On most conforming loans lenders are required by law by the Home Owner's Protection Act of 1998 to cancel PMI when the debt reaches 78% of the original purchase price according to the amortization schedule.

While it must be dropped at 78%, homeowners may request that it be dropped when the balance has dropped to 80% of the original purchase price. Since PMI is provided as a condition of granting the loan and protects the lender, and is essentially an insurance premium there is no financial incentive for a lender to drop the PMI. So for the 80% request they typically require that the homeowner pay for an appraisal to prove that it has not dropped in value, which you have to for it whether the home appraises for enough or not.

jimb


beat me to the punch :)

+1

joelly
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Re: 10% Mortgage Down payment

Post by joelly » Thu Mar 03, 2016 12:16 pm

jimb_fromATL wrote:
That's what the text of the HPA at the above link says. You can ask to drop the PMI if you've paid it down to 80% faster than normal, but it's your responsibility to provide acceptable proof (an acceptable appraisal) to show that it has not dropped in value.

They have to go by the original value only when the 78% point is reach in the original amortization schedule.

jimb


:oops: Appreciate the clarification so much. In lieu of this, we choose to pay it upfront (not yet though, still debating). The one time fee is for about 2 yrs of PMI. We have doubts in regards to increase in value. It will be nice but what if the market drop in value and we end up paying for more than 2 yrs of PMI.

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Re: 10% Mortgage Down payment

Post by jimb_fromATL » Thu Mar 03, 2016 1:33 pm

guymadison wrote:Buy it with 10-20% down on a 30 year mortgage, live in it for 2 years then buy another home and rent the current home you are in. Then in another 2 years do the same thing and build up real estate income.

That may be harder to do in the future than it has been in the recent past.

Like any other investor, lenders want a bigger return for their investment when it has more risk. And there is more risk to the lender that the borrower will default on the mortgage when it's not on their own home where they live and where their stuff is.

Most mortgages have a due on sales clause or other wording in the contract that allow the lender to call the mortgage due immediately if the home is sold or converted to another use.

They don't always do it, but because so many homes were converted to rentals during the crash of the housing market the OCC has issued a directive requiring lenders to review many types of loans to identify homes that have been converted from personal residences to rentals, and to either call them due or possibly raise the interest rate and increase the required equity in order to make it worth the extra risk. Mortgage Lenders Cracking Down on Single Family Rentals

So ... especially if you have a relatively low rate compared to the current rental mortgage market rates, chances are pretty good that at some time in the future you won't be allowed to convert it to a rental without either refinancing or recasting to a higher rate and possibly having to pay a big chunk of money to reduce the LTV (Loan To Value) ratio.

Another problem could be the debt-to-income ratio required to qualify for an additional mortgage for your next home.

The mortgage, taxes, insurance, and possibly an allowance for maintenance and repairs on both homes plus all other debt payments typically cannot exceed more than about 36% of your income (possibly up to about 41% for FHA loans).

Lenders typically will not consider rental income as part of the qualifying unless you have proof of one to two years of actual rental income -- as reported on your taxes. That might make it a little hard to get a new mortgage if you have a big mortgage on the current home.

If you live in an area where homes are appreciating/recovering in value rapidly, there's another problem. If you have lived in a home for two out of the last five years before you sell it you get to exempt the first $500K of gain in value from capital gains tax. ($250K for a single person.) If you put it into rental service, the extra capital gains tax when you sell it at sometime in the future could offset a lot of the potential profit from converting it into a rental.

jimb

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Re: 10% Mortgage Down payment

Post by guymadison » Thu Mar 03, 2016 6:42 pm

jimb_fromATL wrote:
guymadison wrote:Buy it with 10-20% down on a 30 year mortgage, live in it for 2 years then buy another home and rent the current home you are in. Then in another 2 years do the same thing and build up real estate income.

That may be harder to do in the future than it has been in the recent past.

Like any other investor, lenders want a bigger return for their investment when it has more risk. And there is more risk to the lender that the borrower will default on the mortgage when it's not on their own home where they live and where their stuff is.

Most mortgages have a due on sales clause or other wording in the contract that allow the lender to call the mortgage due immediately if the home is sold or converted to another use.

They don't always do it, but because so many homes were converted to rentals during the crash of the housing market the OCC has issued a directive requiring lenders to review many types of loans to identify homes that have been converted from personal residences to rentals, and to either call them due or possibly raise the interest rate and increase the required equity in order to make it worth the extra risk. Mortgage Lenders Cracking Down on Single Family Rentals

So ... especially if you have a relatively low rate compared to the current rental mortgage market rates, chances are pretty good that at some time in the future you won't be allowed to convert it to a rental without either refinancing or recasting to a higher rate and possibly having to pay a big chunk of money to reduce the LTV (Loan To Value) ratio.

Another problem could be the debt-to-income ratio required to qualify for an additional mortgage for your next home.

The mortgage, taxes, insurance, and possibly an allowance for maintenance and repairs on both homes plus all other debt payments typically cannot exceed more than about 36% of your income (possibly up to about 41% for FHA loans).

Lenders typically will not consider rental income as part of the qualifying unless you have proof of one to two years of actual rental income -- as reported on your taxes. That might make it a little hard to get a new mortgage if you have a big mortgage on the current home.

If you live in an area where homes are appreciating/recovering in value rapidly, there's another problem. If you have lived in a home for two out of the last five years before you sell it you get to exempt the first $500K of gain in value from capital gains tax. ($250K for a single person.) If you put it into rental service, the extra capital gains tax when you sell it at sometime in the future could offset a lot of the potential profit from converting it into a rental.

jimb


Thanks thats good to know, I never was able to use that trick.. I know people that have been using it. My wife insists in living our little house of 20 years and she isn't moving even though our most recent rental purchase is actually nicer than our house. (IMO) So we buy at investment rates.. but even those are at good rates today.

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