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Mortgage downpayment strategies: 20%, 5% with PMI, or 5% with a higher rate?
Posted on 10/25/16 at 6:34 pm
Posted on 10/25/16 at 6:34 pm
I would do 20% w/ everything I will make on my old house plus some in savings.
5% w/ PMI option would keep PMI on for around 12 years.
5% w/ higher interest rate option raises the long rate by 0.41%.
I like the idea of having cash for improvements and not paying PMI, so Option 3 is appealing to me. Not sure I will be in the house 12 years. I was told that piggyback loans (80-10-10) are no longer available per Dodd-Frank.
And adivce? TIA
5% w/ PMI option would keep PMI on for around 12 years.
5% w/ higher interest rate option raises the long rate by 0.41%.
I like the idea of having cash for improvements and not paying PMI, so Option 3 is appealing to me. Not sure I will be in the house 12 years. I was told that piggyback loans (80-10-10) are no longer available per Dodd-Frank.
And adivce? TIA
This post was edited on 10/25/16 at 6:38 pm
5
Posted on 10/25/16 at 7:03 pm to PatDyesPants
If you think there's a good chance you'll be out in ~7 years you could look at a lower rate ARM.
It'd also be helpful to give us some numbers. Monthly income? Home cost?
It'd also be helpful to give us some numbers. Monthly income? Home cost?
Posted on 10/25/16 at 7:11 pm to TheOcean
The house is around $250. I can fairly easily afford the monthly payments for all 3 options.
My base rate on a 30 year fixed is 3.25%.
My base rate on a 30 year fixed is 3.25%.
Posted on 10/25/16 at 8:15 pm to PatDyesPants
quote:
5% w/ higher interest rate option raises the long rate by 0.41%
What type of loan is this?
Posted on 10/25/16 at 8:18 pm to Buga_Scores
30 year conventional
Posted on 10/25/16 at 8:23 pm to PatDyesPants
15 year loan.
Posted on 10/25/16 at 9:11 pm to PatDyesPants
I was in a similar situation this year
I could have put down 15%, but didn't have enough for 20 without tapping 401k
I ended up doing a 5yr lender paid MI with the higher rate.
I wasn't sure I would be in the house for long enough to make the PMI make sense and I didn't want to deplete all my cash on hand so it made most sense for me.
I could have put down 15%, but didn't have enough for 20 without tapping 401k
I ended up doing a 5yr lender paid MI with the higher rate.
I wasn't sure I would be in the house for long enough to make the PMI make sense and I didn't want to deplete all my cash on hand so it made most sense for me.
Posted on 10/25/16 at 9:37 pm to Croacka
How much did you pay in fees up front? So assume a 250,000 house requires 12,500. How much extra should one budget?
Posted on 10/25/16 at 9:44 pm to LSUtoOmaha
It's usually built into the rate. Closing costs should basically be about the same.
Posted on 10/26/16 at 9:01 am to Croacka
You need to analyze closing costs to your principle payments per year. If you sell the house for $250k that's $15,000 in closing costs and probably closer to $20,000 or more if you have to help the new buyers and gain some appreciation.
At 5% down with 3.375% that's about $5200/ year in principle the rest of your payments are insurance, interest, and pmi. So your break even is 4 years. So you really sure be pretty darn positive you will be in the house at least that long.
At 5% down with 3.375% that's about $5200/ year in principle the rest of your payments are insurance, interest, and pmi. So your break even is 4 years. So you really sure be pretty darn positive you will be in the house at least that long.
Posted on 10/26/16 at 9:28 am to PatDyesPants
quote:
I was told that piggyback loans (80-10-10) are no longer available per Dodd-Frank.
False 80-10-10's are still around and would be an option for you in this situation. This is only a good route to go though if you think you can pay off the second lien's 10% quickly. It will be at a much higher rate.
Posted on 10/26/16 at 10:04 am to BBJ
quote:
30 year conventional
quote:
15 year loan.
Posted on 10/26/16 at 12:20 pm to Teddy Ruxpin
I am in the same situation and not quite sure what to do.
Sale price on the new house is $315K.
I have the same options.
1.) I can put 20% down but that leaves me with 10K or less in savings.
2.) I can put 5% down, keep the cash, but pay PMI at a lower rate.
3.) I can put 5% down, keep the cash, and have the PMI bought out for a higher rate.
We probably plan on living in the house for 5-7 years. Possibly longer depending on how fast kids start coming. The crazy thing is I have ran the numbers on all 3 possibilities and my monthly note only changes by about $300 a month from option 1 to 2, and only about $30 from option 2 to 3.
I am leaning towards route 3 on paying the higher rate and avoiding the PMI, the rate would be a little under 4% I believe.
What are y'alls thoughts on it?
My monthly payment would be around $1,800 for options 2 and 3. That puts me around 20-22% pre-tax income towards my mortgage. Option 1 would leave me around 16-18% pre-tax income to mortgage. But we are talking about keeping an extra $47,000 in savings.
Sale price on the new house is $315K.
I have the same options.
1.) I can put 20% down but that leaves me with 10K or less in savings.
2.) I can put 5% down, keep the cash, but pay PMI at a lower rate.
3.) I can put 5% down, keep the cash, and have the PMI bought out for a higher rate.
We probably plan on living in the house for 5-7 years. Possibly longer depending on how fast kids start coming. The crazy thing is I have ran the numbers on all 3 possibilities and my monthly note only changes by about $300 a month from option 1 to 2, and only about $30 from option 2 to 3.
I am leaning towards route 3 on paying the higher rate and avoiding the PMI, the rate would be a little under 4% I believe.
What are y'alls thoughts on it?
My monthly payment would be around $1,800 for options 2 and 3. That puts me around 20-22% pre-tax income towards my mortgage. Option 1 would leave me around 16-18% pre-tax income to mortgage. But we are talking about keeping an extra $47,000 in savings.
Posted on 10/26/16 at 12:33 pm to GeauxTime9
quote:
What are y'alls thoughts on it?
In my situation I am thinking of doing the same just because I think at some point PMI will no longer be tax deductible. Pretty sure interest is safe from that standpoint.
Posted on 10/26/16 at 1:20 pm to PatDyesPants
Yeah I agree, I am a bit nervous about the 20-22% pre-tax income to mortgage ratio.
This post was edited on 10/26/16 at 1:41 pm
Posted on 10/26/16 at 1:35 pm to PatDyesPants
quote:
And adivce? TIA
Crunch the numbers, PMI is crazy high now. You could get a home improvement loan and the interest may still not be as high as the PMI monthly payment.
I heard they were doing piggyback loans again but i could be wrong
Posted on 10/26/16 at 1:55 pm to barry
Also depends on what your credit scores are. PMI companies recently came out with updated rates that heavily impact people with worse credit scores.If you have good/great credit scores the PMI rates are not a bad option instead of putting the full 20% down.
Another thing to look at if 20% down seems to be stretching your budget: PMI rates drop on tiers from downpayment levels. The Mortgage Insurance you will pay for 5% down is going to be a higher rate on the loan amount than what you would pay for 10% down. The breaks in rates drop off in each 5% more down levels till it drops off at 20% down.
Another thing to look at if 20% down seems to be stretching your budget: PMI rates drop on tiers from downpayment levels. The Mortgage Insurance you will pay for 5% down is going to be a higher rate on the loan amount than what you would pay for 10% down. The breaks in rates drop off in each 5% more down levels till it drops off at 20% down.
Posted on 11/1/16 at 7:16 pm to PatDyesPants
I ended up going 5% with higher rate after crunching the numbers.
Posted on 11/2/16 at 2:31 am to GeauxTime9
quote:
We probably plan on living in the house for 5-7 years.
You're not going to come out ahead unless you the value goes way up.
I guess you are just trying to cut your losses as much as possible.
What do you plan on doing for a home in 5-7 years?
Posted on 11/2/16 at 9:39 am to WillieD
quote:
You're not going to come out ahead unless you the value goes way up.
I guess you are just trying to cut your losses as much as possible.
What do you plan on doing for a home in 5-7 years?
I agree with this. It's really important to try and pay off your house by a certain date. So many people take mortgages into retirement and that's absurd. You can always move up in house, but to be financially independent you need a paid off house. Putting 5% down will never get you there, it allows you to buy more house than you can afford and spend way more money than you really should be.
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