Amount of downpayment for home purchase

I would personally put 20% down and keep the extra flexible. But I don't think anyone could fault you for putting up to 50% down on a house. It's all about preference.

I wouldn't go any lower than 20% though.

Know thy self

20%. You don’t see extra benefits after 20%, and your money is better invested right now

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20% minimum and more if you can’t guarantee at least 6-7 % return on your investment.

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Well nobody can guarantee that return unless "risk-less" investments rise to that level, which would likely mean the rate on his mortgage would likely change as well.

But I don't know where you get that figure from. As an example, if he was purchasing a $500,000 home, then 20% would $100,000 and 50% would be $250,000. And let's assume he has a 5% rate, plans to sell in 10 years, never refinances, invests either the $150,000 upfront or invests the difference of the lower payment monthly, and both have a return of 5%.

So the $400,000 loan would have a monthly payment of $2147.29 while the $250,000 loan would have a monthly payment of $1342.05 for a difference of $805.24 to invest monthly with the $250,000 loan

Costs (Down Payment and 120 monthly payments)
$400,000 Loan---$357,675
$250,000 Loan---$411,946
Advantage---$53,371 for the $400,000 loan

Remaining Balance (more equity)
$400,000 Loan---$325,368
$250,000 Loan---$203,356
Advantage---$122,012 for $250,000 loan

Investment Return at 5% (upfront v. monthly)
$400,000 Loan---$244,334
$250,000 Loan---$124,806
Advantage---$119,538 for $400,000

Total Return ($400,000 loan - $250,000 loan
$53,371 + $119,538 - $122,012 = $50,897

So even with even with safe 5% return, the lower down payment would result in a net gain over the larger down payment. And since the lower down payment is likely to have more deductible expenses, and the returns are likely more than 5%, then there is no need to guarantee a 6% or 7% return unless rates rise significantly.

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buckeye_vol

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Great breakdown and this is a little misunderstanding on my part.

I think it is very hard to say what to do with a down payment ~12 months from now, though. Market, interest rates, OP earning potential, etc. could look very different.

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Much depends on your rate. Also find out how much (if any) you can itemize. That will reduce your effective rate as well.

But for most people, 20% down isn't a bad move.

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The problem is 20% down seems so arbitrary, and the government incentives and regulations just seem so counterintuitive at times.

It is such a complex process, yet when I started researching FICO scores, PMI, etc., it’s amazing how unnecessarily simple some of it is.

For example, I had a collections bill on my credit report that I thought was from a Dr.’s appointment right before I moved down to Tennessee for grad school in 2010 and right before the Dr restored. It was like $60.

But when I looked into it, I realized I hadn’t caught it before because it was from years later, and discovered that it was a billing error when the hospital switched systems.

And then I pulled all 27 FICO scores and discovered the scores mortgage lenders use, are from the models designed before the housing crash.

And not only were they old, there have been two sets of updates models, and the newest been out for years. In addition, the credit agencies, FICO, and the fed have researched them and found that they predict risk better than the old models still in use. And one of the major changes was less emphasis on small medical collections.

So after disputing the charges with each agency, they removed it, and my scores jumped 50 to 60 points each. Since PMI and mortgage rates are based on the same score, one incorrect medical collection for $60 could have have increased my costs over 10 years by almost $20,000.

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That's the point of credit scores. People who pay close attention to the most minor bills are good credit risks.

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Actually I think that was largely a flawed misconception, and why the new models place far less emphasis on them, while being better predictors of risk.

It also may be the fact that unlike most bills, like energy, cable, etc., medical bills seem especially prone to errors. How many different doctors, health care systems, and billing systems exist, especially with potentially few resources to handle billing and technology changes? The year my son was born, between my wife and him, I probably spent hours navigating various online payment systems. And those were for a few hundred dollars in deductibles and copays for tens of thousands of dollars in procedures, and luckily most were from a couple huge hospital organizations.

But even putting aside that it was a BILLING ERROR, do you really think that the OLD MODELS used when the housing market crash, were good at measuring risk when one $60 medical bill can can change a credit score by 60 points, especially since it was counter all other payments, loans, and lines credit?

And here is maybe the most asinine thing. Since I paid for myFICO and Experian credit services to figure it all out. I used both of their credit change projectors, and they that estimated medical claim for even a couple dollars, lowers the score by those 50-60 points, but a medical claim for tens of thousands of dollars was treated the same.

O and I forgot to add this.

My wife didn’t have much of a credit history at all. So what was recommended? Add her and as an authorized user on my credit card. All of sudden she had a credit history, with all of its on-time payments, dating back years before we even met. And while we went with my score, her score jumped 40 points.

So an imaginary credit history improves her score 40 points, and an incorrect medical bill dropped mine by 60 points.

It ultimately worked out because I got the bill straightened out, but for such a complex process, which understandable when lending a hundreds of thousands of dollars, can be impacted by the things above, and change the costs by tens of thousands of dollars.

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When is a good time to pull an official credit score report in the home buying process? I monitor monthly via credit karma but I understand there are more official reports available.

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Well at least at it pertains to items on your report, Credit Karma has data from Equifax and Transunion, so that’s probably accurate for those two agencies.

And since the only remaining agency is Experian, then maybe that’s the one you should specifically pull and it never hurts to do it sooner rather than later.

Also although you have to pay for, Experian will also provide the actual FICO credit scores for all 3 agencies that will be used for mortgage lending along with the one time reports for all 3. They will also provide updates to any changes to Experian’s reports and scores.