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FirstCAR_FirstHOME
Posts: 7
Registered: ‎07-15-2009
0

How much down payment?

Hello,

This community was very very helpful when we bought our first car and we are now in the process of our first home purchase. We are under contract now for a 350K home and our loan was approved with 10% down conventional at 3.375% interest rate. The issue is the lender quoted quite high PMI (close to $200 per month based on 10% down) and I feel like we are wasting a lot of money.($15000 approx. over 6.5 years just for PMI). The lender is giving us good incentives towards the closing costs and so we want to stick with them. We are debating between 10% and 20% down payment now, considering the additional $35K we put down will save us close to $360 per month. ($200 on MI & $160 on monthly mortgage payments) for the first 6-6.5 years and will save us $160 per month from there. But I am not sure what other factors we need to factor in to make this decision. While we can afford to put an additional 10% down, it is an lot of money and don't want to make the wrong decision. Does it make sense to put down so much on the home given such low interest rates? :smileyfrustrated: Thanks a lot for all your help.

 

Best

FirstCAR_FirstHOME

 

myfico success story:- Tracking my fico score also helped a lot!.The first time the loan officer pulled my scores, it was at 719 pushing me down to the lower band just by two points, and once it went up the next week to 720+, I requested him to pull my scores again, which he agreed to, and allowed me to go for the lower rate. Thanks to myfico and to the very friendly loan officer... :smileyhappy:

 

 

Moderator Emeritus
webhopper
Posts: 7,225
Registered: ‎09-16-2011
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Re: How much down payment?


FirstCAR_FirstHOME wrote:

Hello,

This community was very very helpful when we bought our first car and we are now in the process of our first home purchase. We are under contract now for a 350K home and our loan was approved with 10% down conventional at 3.375% interest rate. The issue is the lender quoted quite high PMI (close to $200 per month based on 10% down) and I feel like we are wasting a lot of money.($15000 approx. over 6.5 years just for PMI). The lender is giving us good incentives towards the closing costs and so we want to stick with them. We are debating between 10% and 20% down payment now, considering the additional $35K we put down will save us close to $360 per month. ($200 on MI & $160 on monthly mortgage payments) for the first 6-6.5 years and will save us $160 per month from there. But I am not sure what other factors we need to factor in to make this decision. While we can afford to put an additional 10% down, it is an lot of money and don't want to make the wrong decision. Does it make sense to put down so much on the home given such low interest rates? :smileyfrustrated: Thanks a lot for all your help.

 

Best

FirstCAR_FirstHOME

 

myfico success story:- Tracking my fico score also helped a lot!.The first time the loan officer pulled my scores, it was at 719 pushing me down to the lower band just by two points, and once it went up the next week to 720+, I requested him to pull my scores again, which he agreed to, and allowed me to go for the lower rate. Thanks to myfico and to the very friendly loan officer... :smileyhappy:

 

 


It really depends on your goal... 

 

You could ask yourself if you could earn more than 15k if that money were invested elsewhere for 6.5 years.   That will give you a good idea whether it would be smarter to use the money towards down payment, or stick in a long term investment. 

 

I prefer to keep as much cash as possible invested in diversified mutual funds rather than sinking all of my proverbial "eggs" into a house... as I get older, the real estate investments will gain in value as I gain equity and will be a good hedge against inflation...   My personal rate of return on investments is somewhere between 13% and 15%... so I feel comfortable doing what I'm doing, as I'm still super young (30 yrs old)

 

If I were older, I'd definately be using more money as a down payment


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Regular Contributor
indecison
Posts: 226
Registered: ‎05-24-2012
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Re: How much down payment?

Totally agree with Web on this one. You can likely get a higher return by investing the 35K rather than sinking it into the house. Plus if times get hard and the unforseen happens you are much more liguid.

Member
FirstCAR_FirstHOME
Posts: 7
Registered: ‎07-15-2009
0

Re: How much down payment?

Thanks a lot to both of you webhopper and Indecision!! I was doing some similar calculations on how much I need to make in order to beat the savings by putting down an additional 10%. Considering I will save $360 per month, I need to consistently make 9.6% per year (after taxes) for the next 6 years. (I know part of the $360 goes towards the principal amt, but I think its less than 5K over the 6 years based on the amoritization etc...)

I am 31 now and don't have much experience in any risk-involving-investment. I was thinking I could not get 9.6% anyway and so its better to put this money in the home. (I have $50K more in liquid cash if I paid 20% down for emergency fund.).

Now I am curious to know which mutual funds webhopper you are investing in & consistently making 13-15%... :smileysurprised: I think you are doing great!

The issues that concerns me in putting all this money in the home are: if the home prices go down or interest rates go too high forcing the home prices down, I will be losing out. 

Please let me know your thoughts. Thanks again,

 

Best

FirstCAR_FirstHOME

 

 

 

 

Moderator Emeritus
webhopper
Posts: 7,225
Registered: ‎09-16-2011
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Re: How much down payment?

[ Edited ]

FirstCAR_FirstHOME wrote:

Thanks a lot to both of you webhopper and Indecision!! I was doing some similar calculations on how much I need to make in order to beat the savings by putting down an additional 10%. Considering I will save $360 per month, I need to consistently make 9.6% per year (after taxes) for the next 6 years. (I know part of the $360 goes towards the principal amt, but I think its less than 5K over the 6 years based on the amoritization etc...)

I am 31 now and don't have much experience in any risk-involving-investment. I was thinking I could not get 9.6% anyway and so its better to put this money in the home. (I have $50K more in liquid cash if I paid 20% down for emergency fund.).

Now I am curious to know which mutual funds webhopper you are investing in & consistently making 13-15%... :smileysurprised: I think you are doing great!

The issues that concerns me in putting all this money in the home are: if the home prices go down or interest rates go too high forcing the home prices down, I will be losing out. 

Please let me know your thoughts. Thanks again,

 

Best

FirstCAR_FirstHOME

 

 

 

 


These are 401k plan options...  I'm putting 10% of my salary into 401k, and my employer is putting 7% of my salary into my 401k....   Here's what I'm invested in:

Investment OptionPercent of total investment
Small/Mid Equity Index IA
Vanguard Extended Market Index Fund, Signal Shares
15%
Mid-Cap Growth Equity I
Disciplined Growth Investors Mid Cap Growth
15%
Small Equity III
DFA U.S. Small Cap Portfolio
10%
Real Estate
Ivy Real Estate Securities Fund Class Y
12%
Small Growth Equity Index I
Vanguard® Small-Cap Growth Index Fund, Investor Shares
10%
Loan138%  This loan, which earns 5.5% was used for house downpayment, also we paid off my husbands Jeep that was financed at 20%

 

 

Other investments (not liquid) are:  Duplex worth about 220k....  owe 163k...  payment is now about $1100 and it generates about $2000 in cashflow for me. FHA loan

House worth about 217k, owe 161k...  payment of about $1400,  20 yr conventional mortgage on this one

 

personal rate of return.JPG

 

We did have two cars that were paid for and one with a note, but one of the paid for cars was totalled. so we put that money towards a new one, and we'll pay off the financed truck in march with bonus pay.

 

You have to be invested in some very volitile stuff to earn the rate of return that I do... most people don't have that much risk tolerance. 

Its all a personal preference, so definately do what you feel comfortable with.  I started the PROR illustration using my hire date... so that's why it goes from April 2009


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Moderator Emeritus
webhopper
Posts: 7,225
Registered: ‎09-16-2011
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Re: How much down payment?

[ Edited ]

In your case you'd probably feel most comfortable by going ahead and putting 20% down... if you decide to do that; I think it would be wise given the 9.6% you quoted. That's a nice return.

In your case; if prices go down; you'd be less likely to be underwater and you would have more flexibility. Keep in mind that if prices go up; you can get out of PMI if you submit an independent appraisal to your lender indicating that your LTV is less than 80% I bought properties that were way undervalued so I plan on pursuing the PMI / MIP elimination in a couple of years.

Starting Score: 08/29/2011 TU 671 EQ 674
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Wallet: NFCU Visa Sig 25k, Amex Lowes 22k, NavCheck 15k, Amex PRG, Amex Zync, Discover It 13.5k, Amazon Visa 5k
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Senior Contributor
StartingOver10
Posts: 4,422
Registered: ‎03-06-2010
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Re: How much down payment?

[ Edited ]

^^^ You might want to check the Mi policy to get its terms and conditions for new policies. The one's I have seen will drop the MI at less than 78% LTV, not 80% LTV AND, they use the loan balance against the original appraised value (unless the new appraisal is less than it was with the original loan). They will no longer count appreciation as part of the equity allowed to drop MI since the MI co's took it on the chin during the meltdown and continue to get hit hard. In other words, you would have to actually pay down the principal to 78% to drop the MI. Check with your lender to verify the type of policy you have. Also, if there are any late payments within 12 to 24 months (I forgot which) of the time you MI automatically comes off, you will not be able to have the MI drop off until you have no late pays for the required period.

 

 

As to the down payment, it seems to be a wise decision putting down the extra 10% given the $360/mth savings. After all, its a guaranteed rate of return of 9.6%. JMHO.

 


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