What % down to put on a house

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FIdream2
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What % down to put on a house

Post by FIdream2 »

Looking for advice on how much to put down on our first home in the DFW metroplex. House is located in a great school district and we plan to live in it at least 2 years. Found the house off-market so did not get into a bidding war. Comps in the area are going for 40-50k more than what we bought it for (believe seller couldn’t afford it and was forced to sell).

Would like to get your thoughts on putting 10% vs. 5% down. Monthly payment difference is only $95 which we can easily afford. Thinking putting 5% down makes more sense in this scenario and use extra money for other investments. If housing market crashed we will stay there until house appreciates back up.

Any insights/recommendations greatly appreciated.
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arcticpineapplecorp.
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Re: What % down to put on a house

Post by arcticpineapplecorp. »

Whatever amount is needed to avoid PMI. that's usually 20% down.

PMI should be avoided at all costs.
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Re: What % down to put on a house

Post by mikejuss »

What is your household income, and what is the price of the house you want to buy?
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Re: What % down to put on a house

Post by FIdream2 »

mikejuss wrote: Thu Jan 20, 2022 8:40 pm What is your household income, and what is the price of the house you want to buy?
House hold income 350K and price of the home 427k (under contract). Have enough cash saved to put down around 15%. Given my income and debt to income ratio, PMI would be only around 50 per my lender.
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FIdream2
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Re: What % down to put on a house

Post by FIdream2 »

mikejuss wrote: Thu Jan 20, 2022 8:40 pm What is your household income, and what is the price of the house you want to buy?
Even if PMI is only around $50 a month given good financials? Thinking I can get a better return just buying VTI with rest of the money
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Re: What % down to put on a house

Post by mikejuss »

FIdream2 wrote: Thu Jan 20, 2022 8:45 pm
mikejuss wrote: Thu Jan 20, 2022 8:40 pm What is your household income, and what is the price of the house you want to buy?
House hold income 350K and price of the home 427k (under contract). Have enough cash saved to put down around 15%. Given my income and debt to income ratio, PMI would be only around 50 per my lender.
I say put down the standard 20%. Congrats on living well within your means.
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Re: What % down to put on a house

Post by grabiner »

FIdream2 wrote: Thu Jan 20, 2022 8:45 pm
mikejuss wrote: Thu Jan 20, 2022 8:40 pm What is your household income, and what is the price of the house you want to buy?
House hold income 350K and price of the home 427k (under contract). Have enough cash saved to put down around 15%. Given my income and debt to income ratio, PMI would be only around 50 per my lender.
So putting down another $21K to get to 20% down would save you $50 per month; that's a risk-free 3% annual return for every year you pay PMI, on top of the risk-free return of the mortgage rate itself from the additional down payment. If it's a 3% mortgage, you are earning 6% on that last $21K for several years, and by the time the PMI would be gone and you start earning just 3%, you'll have saved money from the lower monthly payments which you can invest as you choose.
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Re: What % down to put on a house

Post by pizzy »

arcticpineapplecorp. wrote: Thu Jan 20, 2022 8:37 pm Whatever amount is needed to avoid PMI. that's usually 20% down.

PMI should be avoided at all costs.
I don't think at all costs. Maybe at some costs.

PMI rates can be extremely low nowadays. If your expected return on the funds invested is higher than the interest rate + pmi rates then the decision should be no different than advocating for people to invest vs prepay their mortgage or the decision to stop at 20% vs 30% or 40% down payments.
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Re: What % down to put on a house

Post by Metsfan91 »

FIdream2 wrote: Thu Jan 20, 2022 8:45 pm
mikejuss wrote: Thu Jan 20, 2022 8:40 pm What is your household income, and what is the price of the house you want to buy?
House hold income 350K and price of the home 427k (under contract). Have enough cash saved to put down around 15%. Given my income and debt to income ratio, PMI would be only around 50 per my lender.
Put 5% down. Save other 5% for other things like investing.
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Re: What % down to put on a house

Post by JoeRetire »

Put 20% down.
If you can't afford 20%, you can't afford the house.
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arcticpineapplecorp.
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Re: What % down to put on a house

Post by arcticpineapplecorp. »

pizzy wrote: Thu Jan 20, 2022 10:06 pm
arcticpineapplecorp. wrote: Thu Jan 20, 2022 8:37 pm Whatever amount is needed to avoid PMI. that's usually 20% down.

PMI should be avoided at all costs.
I don't think at all costs. Maybe at some costs.

PMI rates can be extremely low nowadays. If your expected return on the funds invested is higher than the interest rate + pmi rates then the decision should be no different than advocating for people to invest vs prepay their mortgage or the decision to stop at 20% vs 30% or 40% down payments.
but as you see if you do the math as David Grabiner has, it's hard to find a risk free 6% return that you'd get in his example which you would if you put the 20% down and avoided PMI and had lower monthly payments, etc.
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Re: What % down to put on a house

Post by ZWorkLess »

Put 20% down. Always. Only exception is when you are stretching hard to get into your first house, in which case lower is acceptable if you really have no other options.

You're buying a modest price home for your income. If you really can't scrape up 20% right now, pay the 15% you can, and then find out what the deal is with dropping the PMI (I think you generally have to keep it for 12 months, but can then drop it when you've paid down 21% or thereabouts), and make a plan for paying extra principal each month so you can drop the PMI as soon as the wait period is up.
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Re: What % down to put on a house

Post by LittleMaggieMae »

There's this part of the OP:
and we plan to live in it at least 2 years.
I'm assuming since they estimated such a short minimum "live in" time - they won't be living in the house for very long (the traditional 5 to 10 years)

Having money not locked up in the house (in the form of a big down payment) may make sense if they will need the liquidity for the next move.. PMI probably won't be a prohibitive amount to pay for a few years - until the sale of the house. And they may only be paying PMI for a few years (when they will then sell the house and move to the next one.)

Just in general - removing PMI is not always "free" or possible depending on the Loan Contract.

The lender doesn't track equity and then indicate that it can be removed. It's usually up to the homeowner to track WHEN it's likely that PMI can be removed and then to pay something (the cost of an appraisal? a fee or two) to get it removed.

Some types of mortgages carry PMI until the loan is paid in full. So a refinance is needed to get it removed.

The OP might want to consider the future costs/hassles of removing PMI if they may remain in the house longer than 2 years....
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Re: What % down to put on a house

Post by jand87 »

I’ve never put 20% down. I also wouldn’t advise someone to drop all their cash just to get to 20%. My PMI is $42/month. I put down 12%. Another 8% would’ve been $30,000. No thanks. I don’t cash flow enough to save that up fast enough. Real estate is climbing like wildfire right now and depending on where you live you’ll easily reach 20% equity in a couple of years. An appraisal is like $500. Save your cash for first year homeowner problems, remodels, etc.

Also a $425K house with your income is silly affordable. Congrats man.
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Re: What % down to put on a house

Post by FIdream2 »

LittleMaggieMae wrote: Fri Jan 21, 2022 9:35 am There's this part of the OP:
and we plan to live in it at least 2 years.
I'm assuming since they estimated such a short minimum "live in" time - they won't be living in the house for very long (the traditional 5 to 10 years)

Having money not locked up in the house (in the form of a big down payment) may make sense if they will need the liquidity for the next move.. PMI probably won't be a prohibitive amount to pay for a few years - until the sale of the house. And they may only be paying PMI for a few years (when they will then sell the house and move to the next one.)

Just in general - removing PMI is not always "free" or possible depending on the Loan Contract.

The lender doesn't track equity and then indicate that it can be removed. It's usually up to the homeowner to track WHEN it's likely that PMI can be removed and then to pay something (the cost of an appraisal? a fee or two) to get it removed.

Some types of mortgages carry PMI until the loan is paid in full. So a refinance is needed to get it removed.

The OP might want to consider the future costs/hassles of removing PMI if they may remain in the house longer than 2 years....
This is super helpful, thank you! I will definitely talk to my lender and figure out how to remove PMI.

Given the fact that I found this property 'off-market' and that comps in the area are going for $50K more at least, I've automatically 'made' 50K in equity. By putting down 5% I have a total of 21.35K + 50K = 71.35K in equity, which comes out to 16.7% of the value of the home. Hence would take me much less time to reach the 20%. Am I thinking about this the right way? If yes, will definitely track the my equity and get it appraised when I believe I've reached the 20% to remove PMI. Appraisals in my area are going for ~600-700. Thanks for you input!
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Re: What % down to put on a house

Post by FIdream2 »

jand87 wrote: Fri Jan 21, 2022 10:00 am I’ve never put 20% down. I also wouldn’t advise someone to drop all their cash just to get to 20%. My PMI is $42/month. I put down 12%. Another 8% would’ve been $30,000. No thanks. I don’t cash flow enough to save that up fast enough. Real estate is climbing like wildfire right now and depending on where you live you’ll easily reach 20% equity in a couple of years. An appraisal is like $500. Save your cash for first year homeowner problems, remodels, etc.

Also a $425K house with your income is silly affordable. Congrats man.
Yes, this is exactly my thinking. Specially because I found the property off-market and comps in the area are going for 50K more at least. So if the market continues to appreciate I will reach the 20% quicker than anticipated at which time I can you pay for an appraisal like you suggest. Thanks for your input!
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Re: What % down to put on a house

Post by FIdream2 »

ZWorkLess wrote: Fri Jan 21, 2022 9:32 am Put 20% down. Always. Only exception is when you are stretching hard to get into your first house, in which case lower is acceptable if you really have no other options.

You're buying a modest price home for your income. If you really can't scrape up 20% right now, pay the 15% you can, and then find out what the deal is with dropping the PMI (I think you generally have to keep it for 12 months, but can then drop it when you've paid down 21% or thereabouts), and make a plan for paying extra principal each month so you can drop the PMI as soon as the wait period is up.
My reasoning behind putting less than 20% is that I can make a higher return and free some cash for other investments. PMI is just $50 a month, so don't see why it would make sense to pay 20% down when I believe I use the money more effectively. Am I missing something?
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Re: What % down to put on a house

Post by EnjoyIt »

jand87 wrote: Fri Jan 21, 2022 10:00 am I’ve never put 20% down. I also wouldn’t advise someone to drop all their cash just to get to 20%. My PMI is $42/month. I put down 12%. Another 8% would’ve been $30,000. No thanks. I don’t cash flow enough to save that up fast enough. Real estate is climbing like wildfire right now and depending on where you live you’ll easily reach 20% equity in a couple of years. An appraisal is like $500. Save your cash for first year homeowner problems, remodels, etc.

Also a $425K house with your income is silly affordable. Congrats man.
Expecting your house to appreciate fast is an unfounded expectation. Home prices do not always appreciate and homes can drop by 50% as has occurred in 2009 and may take a decade to come back as seen in areas of Nevada, Arizona and Florida.

Unless you plan on living in the house for 5+ years then there is absolutely no reason to buy that house. The cost of selling a home is 6-10%.
6% to the real estate agent and then another few percent to get the house to selling conditions.
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Re: What % down to put on a house

Post by pizzy »

arcticpineapplecorp. wrote: Fri Jan 21, 2022 8:24 am
pizzy wrote: Thu Jan 20, 2022 10:06 pm
arcticpineapplecorp. wrote: Thu Jan 20, 2022 8:37 pm Whatever amount is needed to avoid PMI. that's usually 20% down.

PMI should be avoided at all costs.
I don't think at all costs. Maybe at some costs.

PMI rates can be extremely low nowadays. If your expected return on the funds invested is higher than the interest rate + pmi rates then the decision should be no different than advocating for people to invest vs prepay their mortgage or the decision to stop at 20% vs 30% or 40% down payments.
but as you see if you do the math as David Grabiner has, it's hard to find a risk free 6% return that you'd get in his example which you would if you put the 20% down and avoided PMI and had lower monthly payments, etc.
His math is wrong.

It’s…

5% down with $50/month PMI

Vs

20% down with $0/month PMI

$427,000 house. Would take an additional $64,050 to save $600/year. (Less than 1%)

No thanks.
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Re: What % down to put on a house

Post by FIdream2 »

grabiner wrote: Thu Jan 20, 2022 9:48 pm
FIdream2 wrote: Thu Jan 20, 2022 8:45 pm
mikejuss wrote: Thu Jan 20, 2022 8:40 pm What is your household income, and what is the price of the house you want to buy?
House hold income 350K and price of the home 427k (under contract). Have enough cash saved to put down around 15%. Given my income and debt to income ratio, PMI would be only around 50 per my lender.
So putting down another $21K to get to 20% down would save you $50 per month; that's a risk-free 3% annual return for every year you pay PMI, on top of the risk-free return of the mortgage rate itself from the additional down payment. If it's a 3% mortgage, you are earning 6% on that last $21K for several years, and by the time the PMI would be gone and you start earning just 3%, you'll have saved money from the lower monthly payments which you can invest as you choose.
What if you I got a very good deal, and comps in the area are going for $50K more. I've automatically made 50K in equity for a total of $71.3K (427 * 5% = 21.35K + 50K) on a 427 house. That comes out to 16.6%. At a 3.25% interest rate, it would take me 21 months to get to 20% equity and remove PMI by paying for an appraisal which would cost ~$600. I'm thinking I can use the extra money to invest somewhere else and make a higher return. Let me know if this is the right way to think about this... this is my first time buying a home.
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Re: What % down to put on a house

Post by H-Town »

FIdream2 wrote: Thu Jan 20, 2022 8:35 pm Looking for advice on how much to put down on our first home in the DFW metroplex. House is located in a great school district and we plan to live in it at least 2 years. Found the house off-market so did not get into a bidding war. Comps in the area are going for 40-50k more than what we bought it for (believe seller couldn’t afford it and was forced to sell).

Would like to get your thoughts on putting 10% vs. 5% down. Monthly payment difference is only $95 which we can easily afford. Thinking putting 5% down makes more sense in this scenario and use extra money for other investments. If housing market crashed we will stay there until house appreciates back up.

Any insights/recommendations greatly appreciated.
100%

straight-up cash :moneybag :moneybag :moneybag

thinking about the possibility of having no mortgage and no debts. you may save most of your take-home pay and build up your taxable brokerage account.

debating between 10% or 5% is a worthless exercise. what matters is the total cost if the new house you take on.
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Re: What % down to put on a house

Post by 8foot7 »

PMI is 100% of the time a straight-up waste of money and should always be avoided.

But for a moment ignore the math. This is your first home. Odds are stacked against you that you would take the money freed up from your lower downpayment and invest them. You'll very likely instead find yourself furnishing the house, upgrading it, making repairs, discovering hidden costs, etc.
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Re: What % down to put on a house

Post by MortgageOnBlack »

Bought back in 2016...
If I would have waited to save 20%, I would have been priced out of a house. I only put 5% down and was able to refinance my way out of PMI at 9 months (appraisal showed 80/20). Knowing what I know now, I wish I would have put 3.5% down and bought something sooner.

Of course, in my situation, the market did all of the heavy lifting for me.
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Re: What % down to put on a house

Post by FIdream2 »

8foot7 wrote: Fri Jan 21, 2022 11:08 am PMI is 100% of the time a straight-up waste of money and should always be avoided.

But for a moment ignore the math. This is your first home. Odds are stacked against you that you would take the money freed up from your lower downpayment and invest them. You'll very likely instead find yourself furnishing the house, upgrading it, making repairs, discovering hidden costs, etc.
This home was build less than two years ago.. I don't expect many repairs or upgrades. Inspector said the house was in great condition. That said I do plan to have a a good cushion in case anything breaks. In regards to furniture, already have most of the furniture given I am renting. I definitely plan to invest the difference.
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Re: What % down to put on a house

Post by WS1 »

FIdream2 wrote: Thu Jan 20, 2022 8:46 pm
mikejuss wrote: Thu Jan 20, 2022 8:40 pm What is your household income, and what is the price of the house you want to buy?
Even if PMI is only around $50 a month given good financials? Thinking I can get a better return just buying VTI with rest of the money
Please get an actual PMI quote from your lender before you crunch numbers or get too many opinions. I think many on this site had experience with PMI a long time ago or via people with mediocre credit.

My PMI with 5% down and a 780+ FICO was 20bps
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Re: What % down to put on a house

Post by TexasMu »

Just sent you a pm on what area of Dallas the house is located
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Re: What % down to put on a house

Post by Investor1287 »

Isn't this as simple as finding out what the PMI payment will be ($/month) and deciding if that amount is significant to do? If it's $50/month or $600/year and you get to 80/20 (as you think you will; can't comment on that, have never seen the house) in <5 years, that seems like a no brainer w/ the way the housing market is.

Saying "PMI should be avoided at all costs" is a blunt statement that doesn't take into account someone's ability to buy a home in this market w/ <20% down and the associated opportunity cost of not being able to once 20% is eventually saved. It's not like you have to walk around wearing a hat w/ "PMI" stamped on it.

Good luck.
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Re: What % down to put on a house

Post by grabiner »

WS1 wrote: Fri Jan 21, 2022 11:33 am
FIdream2 wrote: Thu Jan 20, 2022 8:46 pm
mikejuss wrote: Thu Jan 20, 2022 8:40 pm What is your household income, and what is the price of the house you want to buy?
Even if PMI is only around $50 a month given good financials? Thinking I can get a better return just buying VTI with rest of the money
Please get an actual PMI quote from your lender before you crunch numbers or get too many opinions. I think many on this site had experience with PMI a long time ago or via people with mediocre credit.

My PMI with 5% down and a 780+ FICO was 20bps
While this is low, it is still a significantly larger cost than it seems. You are paying an extra 0.20% on the whole loan. If that raises the loan rate from, say, 3.00% to 3.20%, it is equivalent to paying 3.00% on 80% and 4.27% on 15% of the loan. And it is actually worse because you can't just pay off the 4.27% portion, as you would if you had a 3.00% first mortgage and a 4.27% second mortgage (unless you refinance, which you might not want to do if rates rise).

Another way to look at the cost is to treat the higher rate as being equivalent to getting a higher rate by paying fewer points. On a 30-year loan, one point normally results in a rate reduction of 0.125%, so the 0.20% rate difference is equivalent to paying an extra 1.6 points. Thus, by putting 5% down rather than 20%, you are losing about 11% of the reduced down payment.

This last rule of thumb also helps in a decision whether the reduced down payment is worthwhile. If you did put 20% down and paid 1.6 fewer points, you would have to get the extra 13.4% of the purchase price from somewhere. The cost of doing this (capital gains on a stock sale, losing tax-free growth on a Roth IRA withdrawal) might be more than the points.
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Re: What % down to put on a house

Post by 8foot7 »

You realize putting 5% down that you’re in the hole by 1% already given it’ll cost you 6% to get out of the house when you sell? Plus the added cost of PMi, insurance paid for by you that does not benefit you and is charged because the lender thinks you can’t afford the loan. And of course assuming all house prices will go up has been correct lately but is by no means a guarantee; are you prepared to be underwater in your house if rates go up even to say 4%?
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Re: What % down to put on a house

Post by skis4hire »

FIdream2 wrote: Fri Jan 21, 2022 10:35 am
LittleMaggieMae wrote: Fri Jan 21, 2022 9:35 am There's this part of the OP:
and we plan to live in it at least 2 years.
I'm assuming since they estimated such a short minimum "live in" time - they won't be living in the house for very long (the traditional 5 to 10 years)

Having money not locked up in the house (in the form of a big down payment) may make sense if they will need the liquidity for the next move.. PMI probably won't be a prohibitive amount to pay for a few years - until the sale of the house. And they may only be paying PMI for a few years (when they will then sell the house and move to the next one.)

Just in general - removing PMI is not always "free" or possible depending on the Loan Contract.

The lender doesn't track equity and then indicate that it can be removed. It's usually up to the homeowner to track WHEN it's likely that PMI can be removed and then to pay something (the cost of an appraisal? a fee or two) to get it removed.

Some types of mortgages carry PMI until the loan is paid in full. So a refinance is needed to get it removed.

The OP might want to consider the future costs/hassles of removing PMI if they may remain in the house longer than 2 years....
This is super helpful, thank you! I will definitely talk to my lender and figure out how to remove PMI.

Given the fact that I found this property 'off-market' and that comps in the area are going for $50K more at least, I've automatically 'made' 50K in equity. By putting down 5% I have a total of 21.35K + 50K = 71.35K in equity, which comes out to 16.7% of the value of the home. Hence would take me much less time to reach the 20%. Am I thinking about this the right way? If yes, will definitely track the my equity and get it appraised when I believe I've reached the 20% to remove PMI. Appraisals in my area are going for ~600-700. Thanks for you input!
The PMI is based on loan to value and the value is the appraised value, not the purchase price. It sounds like you mean you have 15% of the purchase price in cash which is $64k. You expect the house to appraise for $477k so your LTV with that down payment is already 76%, no PMI needed. You only have to put down about $45k to be at 80% LTV and avoid PMI.

I agree with the sentiment that PMI is like giving up a 6% risk free return which you may or may not beat in the stock market at a significantly higher risk.
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Re: What % down to put on a house

Post by Simple Simon »

Great that you can buy your house with just 15 months income.

Given that within a short time you could pay back the loan, if you choose, does it matter much what you put down now? I wouldn't sweat it in your position.
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Re: What % down to put on a house

Post by jharkin »

skis4hire wrote: Fri Jan 21, 2022 5:42 pm

The PMI is based on loan to value and the value is the appraised value, not the purchase price. It sounds like you mean you have 15% of the purchase price in cash which is $64k. You expect the house to appraise for $477k so your LTV with that down payment is already 76%, no PMI needed. You only have to put down about $45k to be at 80% LTV and avoid PMI.

I agree with the sentiment that PMI is like giving up a 6% risk free return which you may or may not beat in the stock market at a significantly higher risk.
Not in my experience... When we bought our first house ages ago and needed PMI, the appraisal came in higher than our offer price but the bank used our offer price to compute LTV and determine PMI.

I think they use whichever is lower - appraisal or contract price.
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Re: What % down to put on a house

Post by Outer Marker »

FIdream2 wrote: Fri Jan 21, 2022 10:40 am My reasoning behind putting less than 20% is that I can make a higher return and free some cash for other investments. PMI is just $50 a month, so don't see why it would make sense to pay 20% down when I believe I use the money more effectively. Am I missing something?
Another vote for 20% down. What you are missing is that the $600/yr PMI saving, the .2% rate savings on the loan, and the $65,000 in reduced principal balance ($2,080 annually) are all guaranteed savings, while the potential for higher returns in the stock market are speculative at best. For a reality check, the S&P is down more than 8% YTD and bond yields are less than inflation with substantial interest rate risk. I would not plan on making a killing in the market vs. 20% down on your loan.
WS1
Posts: 497
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Re: What % down to put on a house

Post by WS1 »

grabiner wrote: Fri Jan 21, 2022 4:19 pm
WS1 wrote: Fri Jan 21, 2022 11:33 am
FIdream2 wrote: Thu Jan 20, 2022 8:46 pm
mikejuss wrote: Thu Jan 20, 2022 8:40 pm What is your household income, and what is the price of the house you want to buy?
Even if PMI is only around $50 a month given good financials? Thinking I can get a better return just buying VTI with rest of the money
Please get an actual PMI quote from your lender before you crunch numbers or get too many opinions. I think many on this site had experience with PMI a long time ago or via people with mediocre credit.

My PMI with 5% down and a 780+ FICO was 20bps
While this is low, it is still a significantly larger cost than it seems. You are paying an extra 0.20% on the whole loan. If that raises the loan rate from, say, 3.00% to 3.20%, it is equivalent to paying 3.00% on 80% and 4.27% on 15% of the loan. And it is actually worse because you can't just pay off the 4.27% portion, as you would if you had a 3.00% first mortgage and a 4.27% second mortgage (unless you refinance, which you might not want to do if rates rise).

Another way to look at the cost is to treat the higher rate as being equivalent to getting a higher rate by paying fewer points. On a 30-year loan, one point normally results in a rate reduction of 0.125%, so the 0.20% rate difference is equivalent to paying an extra 1.6 points. Thus, by putting 5% down rather than 20%, you are losing about 11% of the reduced down payment.

This last rule of thumb also helps in a decision whether the reduced down payment is worthwhile. If you did put 20% down and paid 1.6 fewer points, you would have to get the extra 13.4% of the purchase price from somewhere. The cost of doing this (capital gains on a stock sale, losing tax-free growth on a Roth IRA withdrawal) might be more than the points.
I like the points analogy; thinking about my transaction as a lower interest 80% loan and a 15% higher rate loan was exactly my mental model, but I can drop PMI after 24 months with extra payments or an appraisal.

Anyway, minimizing the cash to close and maximizing contingency funds really gave me the confidence to buy and (un)successfully lower my anxiety around homeownership. It's not like I came to the transaction with $5 to my name; down payment, reimbursing for paid property taxes, a full year of insurance, mortgage recording tax, and seeding the escrow account still worked out to at least 10% of purchase price. This forum frequently discusses mathematically suboptimal plans that give piece of mind, and I think this is one of those times.

Bringing another $40,000 would have lowered my monthly payment $200, but I feel much better having a pile of assets I can use to quickly (and without hesitation) address any deferred maintenance, first year surprises, or top priority quality of life items.
CoastLawyer2030
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Re: What % down to put on a house

Post by CoastLawyer2030 »

I put down 5% at my house when we bought it in 2020 because I wanted to hold onto cash. We saved and then re-financed when we could get the LTV down to 20% and ditch the PMI.

I believe our mortgage payment went from $1750 to $1490 per month, which was a nice boost to monthly cash flow.

The differentiating circumstance between then and now, though, is that my refinance rate was rock bottom, while it seems like rates are going to go up.

Bottom line is that I don't think PMI is the worst thing ever. Consider it an extra tenth of a point on your interest rate for 7 years. If rates go up then you can do a lump sum payment to get your loan down and get rid of the PMI.
Isabelle77
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Re: What % down to put on a house

Post by Isabelle77 »

We bought a house in 2007 put 15% down and paid minimal PMI with the thought that real estate always goes up right? We weren't able to refinance to remove the PMI for 6yrs. If you're ok with that, ok. Just know that you may be paying that PMI for a long time.
remomnyc
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Re: What % down to put on a house

Post by remomnyc »

First, I wouldn't buy a house unless I was planning to live there for at least 5 to 10 years because of transactional costs. Second, I would not buy with less than 20% down and pay PMI because I may be paying PMI forever. If you need a reappraisal and refi to eliminate PMI, a year or two from now, the house could be worth 20% less and you'd have to put way more cash down to get rid of the PMI. Also, just because you're buying it at a discount to today's price doesn't mean it won't be worth less 2 years from now, especially if interest rates increase, because the current housing market in most areas is inflated today. In your situation, I would rent.
Outer Marker
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Re: What % down to put on a house

Post by Outer Marker »

WS1 wrote: Mon Jan 24, 2022 11:55 am ...minimizing the cash to close and maximizing contingency funds really gave me the confidence to buy and (un)successfully lower my anxiety around homeownership. It's not like I came to the transaction with $5 to my name; down payment, reimbursing for paid property taxes, a full year of insurance, mortgage recording tax, and seeding the escrow account still worked out to at least 10% of purchase price. This forum frequently discusses mathematically suboptimal plans that give piece of mind, and I think this is one of those times.
With a household income of $350K and a purchase price of $427K, OP can well afford the house and cover any contingencies. The stated purpose of the low down payment and PMI is to increase leverage: "My reasoning behind putting less than 20% is that I can make a higher return and free some cash for other investments. PMI is just $50 a month, so don't see why it would make sense to pay 20% down when I believe I use the money more effectively." Perhaps. But I'd prefer the safety and security of a guaranteed lower mortgage with no PMI.
cabould
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Re: What % down to put on a house

Post by cabould »

JoeRetire wrote: Fri Jan 21, 2022 6:05 am Put 20% down.
If you can't afford 20%, you can't afford the house.
Agree with retired joe. Where is all of your money going? You say you have a 350K yearly income, yet can't afford the 20% ($64,050) down payment on the house? On a 350K income, saving 20% for the down payment on the house should take no time at all.
bhough
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Re: What % down to put on a house

Post by bhough »

As close to 20% as you can and still get the house. Please note that if you put 19% down with the idea that you'll pay it off in the next year, some lenders require you to jump through crazy hoops to take off the PMI, even after you hit 20%--like paying for another appraisal/etc. They are going to jerk you arou nd if you put less than 20% down, just be aware of that. Find the money to avoid PMI.
b
fyre4ce
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Re: What % down to put on a house

Post by fyre4ce »

+1 for 20% down. There are all sorts of reasons why this is a good idea. As has been calculated, the effective rate of return on the additional money is really good, far better than any risk-free return you can get elsewhere. I wouldn't worry about leverage; you're still leveraging 5:1 with 20% down, that's plenty.
abracadabra11
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Re: What % down to put on a house

Post by abracadabra11 »

0% down - that's the plan for our next home.

VA loan - no PMI.
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