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My wife and I are in our late 20s and are looking to buy our first home within the next few years. My question is, in general, what percentage would you all recommend using for a down payment? (100% is ideal, but not happening ) Obviously interest rates are very low right now and are likely to remain as such for some time, which could impact the recommendation. But assuming all things being equal (interest rates, emergency funds, etc) what would you say is the ideal down payment? Is it 10%? Is it 20%? To me, 15% seems counterproductive since you will still have to pay PMI for a duration that may extend beyond the time that you pass the 20% equity threshold. Higher and lower than 10-20% could also have their positives and negatives. Any and all thoughts welcome. Thanks so much.
minimum to get the best rate and avoid PMI .
That's 20% right?manuvns wrote:minimum to get the best rate and avoid PMI .
Percentage points never fed anyone, so basically you are asking the wrong question. How much can you afford to borrow. Definitely 20% to avoid PMI, etc., but even 30% might get you a better rate. But ultimately if you only feel comfortable borrowing (and paying back) $3000,000. then the answer is 25% for a $400,000 house and 50% for $600,000 house.
A minimum of 20%
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I wouldn't count on that.Obviously interest rates are very low right now and are likely to remain as such for some time, .....
A 4% 30 year fixed rate mortgage when inflation is running 3.4% is very unusual to say the least. For people who can deduct the mortgage interest that is likely a negative real (inflation adjusted) interest rate.
Not only can rates change but the qualification standards can get more stringent.
Of course rates can go down even farther too, who knows, I sure don't. I thought getting a mortgage at less than 5% was a once in a lifetime event a few years ago.
For a conventional loan it usually is but I'm not sure about things like FHA loans.tea_lover wrote:That's 20% right?manuvns wrote:minimum to get the best rate and avoid PMI .
It will vary by lender but I just refinanced and I noticed that at 25% they did not require and escrow account. For what it is worth I used PenFed and I didn't have any problems on a refinance but I selected them because of a special type of no cost loan that probably would not be right for you.
It will vary by lender but I just refinanced and I noticed that at 25% they did not require and excrow account.
I would not buy unless I had a minimum of 20% to put down, while still having 8-12 months of expenses in a emergency fund seperate from the down payment. In addition, I would only buy a house that I could afford to finance no longer than 15 years with monthly payment no more than 25% of take home pay. In other words, buy a lot less house than the average person does in relation to their income (about half what your realtor is telling you you can "afford").
The two most important things to keep in mind are to avoid PMI like the plague and make sure you can comfortably make the payments. When my wife and I bought in 2005 we did an 80/10/10. First mortgage is 80%, second 10% was a HELOC, and then a 10% down payment. I hear this set-up is more difficult to get but still possible if you have high enough credit and income. Worked out well for us since we were living well below our means and we just payed off the HELOC in about 18 months.
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."
We put down 20% on our first home.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
I put down 15%, as it was the most I had access to at a young age (24). I did, however, aggressively pre-pay the principal and got rid of the PMI about 6 months later. The PMI at 15% down was not really that bad, but I don't know if current underwriting allows <20% without a ton of hassle.
I put down 74% in 1994, which was 250k, because I wanted a 10 year 6% mortgage. I negotiated directly with the seller -- no bank, no points, no extra fees.
Greg, retired 8/10.
I've done 3% once and 20% twice. I recommend 20%. Much better deal on the rate, no PMI, plenty of cushion in case of property values dropping, and lower payments overall.
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The analysis of the correct down payment amount could get pretty involved. Overall, if you're not planning to pay off your mortgage then the lowest down payment you can get leaves you with the most capital for other things. As has been mentioned by others a significantly large down payment can lower your monthly payment since you won't have to pay PMI, but you'd need to do some math determine if that's the highest best use of your funds. My personal preference is zero down since I want the most inflation leverage I can get, but maybe you have more faith in dollar stability than I do.