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re: 20% down on a house…is it dumb?
Posted on 2/7/22 at 12:17 am to Vrai
Posted on 2/7/22 at 12:17 am to Vrai
Well, my house I just bought was $800k. I was going to put 20% down. Broker said I could do 10% and the second loan for the remainder would vest in 15 yrs (balloon) for the other 10%. Both rates were the best on the market and I have other investments I want my $ in. Am doubling principal payment on the second.
No pmi.
No pmi.
0
Posted on 2/7/22 at 6:49 am to MisslePig
I’m curious of the impact FEMA Flood 2.0 will have on the housing market in Louisiana. As I understand, and I’m probably wrong, it’s based on the nearest body of water?
Posted on 2/7/22 at 9:36 am to Origins of Asymmetry
quote:
If someone would have bought a house 5 to 10 years ago and dumped that money into an index fund they'd be doing great.
Sure. But there are ups and downs in both the housing market and stock market. If someone had done the same thing in 2008, they'd have been upside down for several years.
Housing prices are crazy right now (just like they were in 2008) and the stock market is treacherous (I don't think we're headed for a recession, but you never know).
Here's a personal anecdote...We bought our house in April 2008, put over 26% down (just dumped all the proceeds from our previous home sale directly into our new home) and in 2013 we still weren't back to having 20% equity.
If we had only put 5 or 10% down and put the rest in equities, we'd have been totally screwed if for some reason we needed to sell.
I'm not saying I'd never consider financing 90 or 95% of a home purchase, but I'd need a compelling reason to do so. I surely wouldn't do it just to hold onto some cash and right now, I'd be leery about dumping it into the stock market. Prices of investment properties are through the roof as well, so I don't think that's a safe place to be (with new investments) either.
While it's certainly not the only option in this rate environment, I don't think you can go wrong with building a little equity in your home.
Posted on 2/7/22 at 9:56 am to Origins of Asymmetry
quote:
What? If someone would have bought a house 5 to 10 years ago and dumped that money into an index fund they'd be doing great.
Of course they did. I am talking about today, February 2022, not 5-10 years ago. The stock market is no longer going to be returning 20% since the fed is not pumping money. And, prices in real estate have generally appreciated 20-40% in the last two years.
Posted on 2/7/22 at 10:44 am to go ta hell ole miss
quote:
And, prices in real estate have generally appreciated 20-40% in the last two years.
What does this have to do with putting more or less down upfront on a house?
Posted on 2/7/22 at 10:50 am to JohnnyKilroy
quote:
What does this have to do with putting more or less down upfront on a house?
The more your house appreciates, the more equity you have in it.
2 years ago, someone could have put 5% down and today they have 20% equity simply by the house value appreciating.
Posted on 2/7/22 at 10:55 am to JohnnyKilroy
quote:
What does this have to do with putting more or less down upfront on a house?
It was in response to someone saying you would have done well if you paid less and invested that money over the last 5-10 years. It Increases down payment and lowers the ability of most to put more money down than they could over the last 5-10 years. Lowers ability to invest more money. Other than that, nothing.
This post was edited on 2/7/22 at 11:02 am
Posted on 2/7/22 at 11:04 am to MisslePig
With inflation running as it is, any long term low interest loan has appeal. Loan at <3%, inflation at >7% adds up nicely if your income keeps pace.
Posted on 2/7/22 at 12:12 pm to MisslePig
I put 100% down on mine
Posted on 2/7/22 at 3:32 pm to SDVTiger
quote:
No there isnt.
You can get lender–paid mortgage insurance
It's a thing. You not knowing about it doesn't make it not a thing.
It's not for everyone because it will come at the expense of higher interest rates. It's an issue of doing the math and figuring out what works best for your personal budget.
Posted on 2/7/22 at 3:33 pm to whitefoot
quote:
Sure. But there are ups and downs in both the housing market and stock market. If someone had done the same thing in 2008, they'd have been upside down for several years.
Yes
And if they did it in 2008 and were still in the same home they'd be in a very solid position right now with both the appreciation of the housing market and stock markets
If you're not planning on staying in a house very long obviously it's a little risky. But if you're not staying in a house very long you should probably just rent anyway.
Posted on 2/7/22 at 4:15 pm to dandan
You can avoid PMI with just 10.01% down now if your credit is good enough.
Posted on 2/7/22 at 6:35 pm to Origins of Asymmetry
quote:
You can get lender–paid mortgage insurance
Right it has Mortage Insurance
Posted on 2/7/22 at 7:43 pm to MisslePig
What’s really crazy is that our building required 35% down when we bought our place in NYC. That was fun. Happy to be out of there.
Posted on 2/7/22 at 7:46 pm to StealthCalais11
Same thing with me. Local bank offered 5% down with no PMI. 4% interest though.
Posted on 2/7/22 at 8:55 pm to Origins of Asymmetry
quote:
And if they did it in 2008 and were still in the same home they'd be in a very solid position right now with both the appreciation of the housing market and stock markets
Right. The value of my home has more than doubled since 2008.
quote:
If you're not planning on staying in a house very long obviously it's a little risky
What if you planned to stay in the home a long time when you purchased the home but were forced to sell a few years later due to unforeseen circumstances (loss of job, divorce, unexpected need to relocate, whatever)?
I really don't know anyone who purchases a house with the intention of selling in a few years. Most who are planning on moving after a short period plan on using the house as an investment property.
My point was just to point out that there are real risks involved and in this environment, it's not a slam dunk that the cash not used for the down payment will outperform the interest rate, plus the extra mortgage payments plus PMI.
Posted on 2/7/22 at 9:07 pm to whitefoot
quote:
What if you planned to stay in the home a long time when you purchased the home but were forced to sell a few years later due to unforeseen circumstances (loss of job, divorce, unexpected need to relocate, whatever)?
That's happened to me personally actually.
As long as you don't piss away the rest of the down payment and keep building savings you'll be alright.
Do I think you need to put 20% down on a house? No. But I do think you should have the ability to do it. If you don't you might be getting more house than you can really afford. Just my take.
Posted on 2/8/22 at 6:00 am to Weagle25
Must not have been in 2008.
Posted on 2/8/22 at 6:56 am to MisslePig
There are 2 ways to frame this with one key perspective.
The key perspective is, "how long will you have this mortgage?"
If you ask everyone with a home how many times they have closed on a new mortgage (purchase or refinance), the average duration for a mortgage is about 4 years.
If the average duration of a mortgage is 4 years, the rate and terms (pmi) dont really matter that much. It is a short term situation. Keep your money in stocks and funds.
That said, we have been in "all time low mortgage rates" for about 13 years. The alternative of staying in the same mortgage for a long time hasnt been the most attractive thing. How long will we be in "all time low mortgage rates" and how will that affect the duration of your loan.
The first way to frame the question of what you should do is how often you will be selling or refinancing. If you think you could keep the mortgage 10, 20, or 30 years, putting 20% down and securing the best terms becomes more important (maybe even pay .25% or .5% points to get an even lower rate).
The second way to frame the mortgage is overhead. Im in sales. The lower my household overhead, the better. Not everyone needs to closely examine their monthly debt loads like i do. But lower overhead has gotten me through the tech bust and real estate bubble without struggle despite starting 2 new careers in those times.
Lower overhead for me allows more monthly contributions to retirement as well. Dollar cost averaging is not a bad thing (although some people seem to think it is compared to lump sum alternatives).
The key perspective is, "how long will you have this mortgage?"
If you ask everyone with a home how many times they have closed on a new mortgage (purchase or refinance), the average duration for a mortgage is about 4 years.
If the average duration of a mortgage is 4 years, the rate and terms (pmi) dont really matter that much. It is a short term situation. Keep your money in stocks and funds.
That said, we have been in "all time low mortgage rates" for about 13 years. The alternative of staying in the same mortgage for a long time hasnt been the most attractive thing. How long will we be in "all time low mortgage rates" and how will that affect the duration of your loan.
The first way to frame the question of what you should do is how often you will be selling or refinancing. If you think you could keep the mortgage 10, 20, or 30 years, putting 20% down and securing the best terms becomes more important (maybe even pay .25% or .5% points to get an even lower rate).
The second way to frame the mortgage is overhead. Im in sales. The lower my household overhead, the better. Not everyone needs to closely examine their monthly debt loads like i do. But lower overhead has gotten me through the tech bust and real estate bubble without struggle despite starting 2 new careers in those times.
Lower overhead for me allows more monthly contributions to retirement as well. Dollar cost averaging is not a bad thing (although some people seem to think it is compared to lump sum alternatives).
This post was edited on 2/8/22 at 6:57 am
Posted on 2/8/22 at 7:36 am to ODP
quote:
Well your acquaintances are poor af, think of pmi as a poor person’s tax.
I think it's been illustrated that this isn't always the case
In fact the 20% down could be objectively considered dumb if you have any investment acumen at all
Consider this scenario:
You're looking to purchase a 200K home
5% down is 10K
20% down is 40k
Put down 5% and put 30K into an index fund
Your PMI payment is 120 a month or 1440 a year
Your break even point in year 1 with 30K invested is only 4.8% return. Obviously with compounding interest it's not difficult to imagine that in most years your gains will completely wipe out your PMI payments and then some particularly as this compounds.
This doesn't even take into account the tax advantages that you have available to you here. You could fully fund an IRA for 2 years and take advantage of the tax benefits
Over essentially any long term scenario the correct choice here would be to put down 5% instead of 20%
As I said in a previous post I think you should have the ability to put down 20% so you could actually play this scenario out
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