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Yeti_Chaser
Member since Nov 2017
2620 posts

Selling Securities to avoid PMI
First time homebuyer, and trying to decide if I should go with a low down payment and keep my positions in the market, or sell so that I can avoid PMI. Home is $350k so 20% down is $70k. I currently have $20k to put down. Interest rate is 2.99%. PMI is $134 per month. $134 x 12 is $1,608 per year, which is 3.2% of the other $50k I need to meet a 20% down payment. 3.2% + the 2.99% interest rate is 6.19%. Is my math correct here that I would be comparing a guaranteed 6.19% vs ~11% by staying invested?
And if PMI and interest are tax deductible then it seems to make sense to hold on to the stocks.


WITNESS23
LSU Fan
Member since Feb 2010
13262 posts

re: Selling Securities to avoid PMI
I'm a big believer in opportunity costs.
I would keep my money in the market and eat the PMI.
It would be frustrating if there was a market correction during the time you're paying your PMI and you didn't pull out then you could be saying what if. But trying to time the market usually doesn't pay off well.

How far away are you from retirement?



TorchtheFlyingTiger
North Carolina St. Fan
It's Germans
Member since Jan 2008
1217 posts

re: Selling Securities to avoid PMI
Don't forget to consider the capital gains you'll pay on the growth when you sell the securities. So, you'll need to liquidate more than $50k. (Unless you're pulling from Roth or you're in zero LTCG bracket).

As first time home buyer be sure to have ample savings set aside for unforseen costs. You will inevitably spend more than you imagined getting established.


tygerfan1
LSU Fan
Member since Aug 2008
1553 posts

re: Selling Securities to avoid PMI
You can't afford the house. Is there any reason you can't put 20% down?


Bermuda99
Member since Jun 2021
40 posts

re: Selling Securities to avoid PMI
Agreed. Lost count of the amount we spent year one to get established, and furnishing.
I would put it at about $8k. $134 a month PMI is not ideal but I wouldn’t cash out.


MSTiger33
LSU Fan
New York City
Member since Oct 2007
17095 posts

re: Selling Securities to avoid PMI
Have to factor in furnishing, updates, painting, etc. I’m not going o say how much we apent. It damn it hurt


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Yeti_Chaser
Member since Nov 2017
2620 posts

re: Selling Securities to avoid PMI
quote:

How far away are you from retirement?

30-40 years so if theres a market correction I'd be ok.

quote:

Don't forget to consider the capital gains you'll pay on the growth when you sell the securities. So, you'll need to liquidate more than $50k

Good point, I could get to $50k without liquidating any short term investments but still long term cap gains tax is another reason to pay the PMI.


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Yeti_Chaser
Member since Nov 2017
2620 posts

re: Selling Securities to avoid PMI
quote:

You can't afford the house. Is there any reason you can't put 20% down?

I don't think this is true. I don't really keep cash except for my 3 month emergency fund and what I need to cover monthly expenses, which I dont want to use to buy the house. Everything else goes straight into my investment accounts. I started saving a bit more cash on hand this year since I wanted to buy a house, which is why I have $20k in cash to put down.


SDVTiger
Hawaii Fan
Cabo San Lucas
Member since Nov 2011
55518 posts

re: Selling Securities to avoid PMI
quote:

You can't afford the house


What are you a 100yrs old?

Put the 3% down and go Conv vs FHA

Save the money and make money with it

You will refi within 5-7yrs anyways


Turf Taint
LSU Fan
New Orleans
Member since Jun 2021
1175 posts

re: Selling Securities to avoid PMI
Who is guaranteeing you 11%, and most importantly, what is their phone number so I can get a piece of this action?

I am a 'use other peoples' money to earn a positive spread' investor, but I think you are buying more house than you can afford, particularly given the risks that you are not considering.

Is this 11% return going to be sustained? How long vs the term of your mortgage? The only thing certain is you paying interest and PMI.

If you decide to re-balance your loan to value to rid of PMI, factor in taxes for realizing capital gains (ie, sounds like you will have to withdraw more to cover taxes)

Is the house new or older (ie, repair costs, home warranties, do you have a rainy day fund to cover a new A/C or that plumbing problem that is not in your spreadsheet yet)? Factor that in, as well.

Have you experienced a 2007-09 market correction (presume you withstood a March 2020...but for how long with the new home and a depleted market position?). These are not myths; I would not overly focus on them but I would plan for them.

Stress test your math and measure your mood if it becomes your reality, would be my 2 cents. Hell, take my 2 cents and just apply it to your PMI! Kidding.

Good luck.



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Turf Taint
LSU Fan
New Orleans
Member since Jun 2021
1175 posts

re: Selling Securities to avoid PMI
quote:

You will refi within 5-7yrs anyways


Why would you refi in 5-7 years at historically low interest rates?

That would suggest the market is dead and OP is likely closer to it (financially), too.


Turf Taint
LSU Fan
New Orleans
Member since Jun 2021
1175 posts

re: Selling Securities to avoid PMI
quote:

But trying to time the market usually doesn't pay off well.


How is this decision (ie, not pulling out of the market to put 20% down on home) different than "time the market"?

Locking in a presumably 20-30 year liability while timing the market without a locked in rate of return

It might be time to find and hug an actuary. Kidding



el Gaucho
LA-Lafayette Fan
bawcomville
Member since Dec 2010
44352 posts

re: Selling Securities to avoid PMI
350k sounds steep for a house unless you got like 4 kids


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114
Yeti_Chaser
Member since Nov 2017
2620 posts

re: Selling Securities to avoid PMI
quote:

Who is guaranteeing you 11%,

I'm weighing the guaranteed 6.19% saved by not paying PMI vs ~11% by staying invested which obviously isn't guaranteed.

It's certainly more than I want to pay for a house but the area I'm in is very expensive and I can swing it without making any changes to my current spending habits. I'm not thrilled about it and am certainly going to look to go cheaper but this thread isnt about determining my budget. I'm trying to weigh the difference in low vs high down payment
This post was edited on 9/15 at 8:52 pm


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SDVTiger
Hawaii Fan
Cabo San Lucas
Member since Nov 2011
55518 posts

re: Selling Securities to avoid PMI
quote:

Why would you refi in 5-7 years at historically low interest rates?



Because your life changes every 5-7yrs and 97% of the borrowing public either sell or refi within that time frame



Turf Taint
LSU Fan
New Orleans
Member since Jun 2021
1175 posts

re: Selling Securities to avoid PMI
quote:

Because your life changes every 5-7yrs and 97% of the borrowing public either sell or refi within that time frame


Is this a real fact or a yank from duodenum fact?

Hear the life change but don't hear the refi in 5-7 years, as they are at historically low rates now. If they are lower then, we are all in trouble.



UpstairsComputer
LSU Fan
Prairieville
Member since Jan 2017
953 posts

re: Selling Securities to avoid PMI
Just here to say taint is on a roll. Haha


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UpstairsComputer
LSU Fan
Prairieville
Member since Jan 2017
953 posts

re: Selling Securities to avoid PMI
A different perspective, why not move to a high dividend strategy temporarily. Typically going to perform better in a market crash scenario anyway, but you could use the dividends to further accelerate paying down your mortgage.

If my drunk math is close, you could stop adding to the investments and use cash flow, in addition to the dividends, and get the PMI knocked out in a couple years.

Just thinking out loud, but it’s kind of a split the difference approach. You keep the current investable assets and make money if everything remains awesome, and you play a little defense while you aggressively knock out PMI in case it doesn’t.



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Tiger Prawn
Member since Dec 2016
18589 posts

re: Selling Securities to avoid PMI
quote:

PMI is $134 per month. $134 x 12 is $1,608 per year, which is 3.2% of the other $50k I need to meet a 20% down payment. 3.2% + the 2.99% interest rate is 6.19%.
Is the PMI being paid all up front? If not, then why would PMI be subject to interest? I thought interest is only calculated on the principal balance. Escrow stuff is paid in advance by the borrower, so it shouldn’t be charged interest


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Tiger Prawn
Member since Dec 2016
18589 posts

re: Selling Securities to avoid PMI
DP
This post was edited on 9/15 at 10:55 pm


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