Do Mortgage Terms Improve with Larger Down Payment? (<20% down)

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dsmil
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Joined: Tue Sep 08, 2009 10:51 am

Do Mortgage Terms Improve with Larger Down Payment? (<20% down)

Postby dsmil » Mon Jan 09, 2017 3:53 pm

Hello Bogleheads,

For those who have put less than 20% down on homes (not FHA), have you experienced more favorable mortgage offerings based on the amount that you have put down? Obviously PMI premiums are affected, but what about interest rates? We're most likely going to move in the next 1-2 years and I'm trying to prioritize either paying off our remaining student loans or putting more money aside for a larger down payment. If we decide to move in 1 year, we have to decide whether to go in with 5% down and student loans paid off or 10% down with student loans remaining on the books for a couple more years after the move.

I'm looking less for advice and more to hear what your experiences were.

Thanks!
Last edited by dsmil on Mon Jan 09, 2017 10:16 pm, edited 1 time in total.

brad.clarkston
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Location: Kansas City, MO

Re: Effect of down payment on loan offerings (<20% down)

Postby brad.clarkston » Mon Jan 09, 2017 4:04 pm

I only have perspective on VA loans so my input is limited but no 20% isn't going to move the mark on interest rates just PMI.

We put 30% down on our current home (fixed 15y 3.2%) and it didn't do anything to the rate which was provided by our mortgage broker before I told him of the down payment.

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Meg77
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Re: Effect of down payment on loan offerings (<20% down)

Postby Meg77 » Mon Jan 09, 2017 4:49 pm

As a mortgage banker, I can tell you the interest rate is usually a lot better the more you put down (this caps out around 30% down - additional amounts put down may not affect the rate much). The difference between 5% down and 10% down may be substantial when it comes to your interest rate. I would recommend keeping the extra cash on hand and paying off student loans a bit slower, unless paying off the student loans would improve your income ratios dramatically and you need that in order to qualify for the mortgage. Besides, closing costs and prepaid items can add up to several percentage points of the loan, increasing your "down payment" much more than most people calculate.

When my husband and I bought our house, we put 10%-12% down but we still got a standard conforming 80% first lien mortgage. The remaining 8-10% we financed on a second mortgage. That way we avoided PMI and got the best rates but didn't have to put down 20% all at once (we paid off the second mortgage within a year with bonuses and other income). A good option to consider!
"An investment in knowledge pays the best interest." - Benjamin Franklin

dsmil
Posts: 466
Joined: Tue Sep 08, 2009 10:51 am

Re: Effect of down payment on loan offerings (<20% down)

Postby dsmil » Mon Jan 09, 2017 7:43 pm

Thanks Meg, that's very good to know. It seems like a good idea would be to save 10% to open up the possibility of a lower rate or 80/10/10 loan. If I'd rather instead pay off the loans at that point, I could always do it at that time.


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