Did you put 20% down?

[HVVS]

Back when I was married, we bought a home that we could have afforded on one of our incomes, even though we had two. We put 5% down and paid cash for the closing costs and some extra for inspection and some repair deal that we'd negotiated with the seller, and I forget what else. If closing costs and those repair costs had been lower, we might have hit 10% down or close to it. We had a 30 year fixed rate. We were stuck with PMI, but we made extra house payments to try to get to the point where we could make the bank drop the PMI.

Some financial analyst that I read said don't buy a home as n investment anymore. Those days are done is what the article said. Historically there were two big housing value booms. One was the postwar '40s through '60s I think. The other one was the big one that just burst. The analyst thought that since the USA has global industrial competition, an aging population, and a lot of wealth concentrated in the older age groups, plus a lot of 40 and 50-somethings finding themselves downwardly mobile after jobs disappeared, that there would be no more boom even after the economy recovers. Add to that the current economic "recession" which I think the government is too chicken to call a depression, is going to kill off a lot of smaller communities as well as building contractors. With increased emphasis on waste-not-want-not, maybe the wasteful USA will finally figure out that older architecture is built to a standard that we cannot match now, and asbestos and lead paint can be dealt with, and we'd better start preserving and refurbishing and dropping some ridiculous code requirements and if we don't, we'll all be living in pasteboard shacks.

Okay, someone else can have the pulpit now. (Apologies if any pews tipped over backward.)

 

[MagsyMay]

We will be getting a VA loan when we buy, so 20% of our own cash is very unlikely. Of course I''d love to put down as much as we could, but only time will tell how much that will be!

 

[April20]

I've put 20% down and not put 20% down. On the house we're in now, we only put 5% down because it was a foreclosure and we needed our cash to do work to the house. We knew that once the work was done, the value of the house would rise appreciatively and we'd have less than 80% of the value financed and we'd get out from under PMI. We refinanced the end of December and the value came back nearly double what we had financed so it worked out.

You really have to weigh all the factors before you decide whether putting 20% down or more or less makes sense for your situation. In this last house, it really didn't make sense, but in the house before that, it did.

ETA: We refinanced from a 30 year fixed to a 15 year fixed and got a great rate. If you can swing a 15, now's the time to do it.

 

[Dancing Fire]

Date: 1/5/2010 10:37:36 PM
Author: movie zombie
yes, definitely did put 20% down. paying PMI is throwing $ out the window.

i read an article today that said we should return to buying a home, not a palace....or an investment. it also stated that new buyers should purchase a home at 75% of what they have been approved for a loan. just because one is approved doesn''t mean one has to get that amount as a loan. it also stated that every effort should be made to pay off early and that even one extra payment per year can make a difference over the long run. the article was really about returning to our grandparents values and not overloading ourselves with debt. and the writer doesn''t buy the idea that things cost more now, etc. his point of view is that things weren''t easy for our grandparents either and the only thing many of them bought on credit was a home.


mz

mz...I wrote that article.

 

[gardengloves]

Date: 1/5/2010 11:09:35 PM
Author: Dancing Fire

Date: 1/5/2010 10:37:36 PM

Author: movie zombie

yes, definitely did put 20% down. paying PMI is throwing $ out the window.


i read an article today that said we should return to buying a home, not a palace....or an investment. it also stated that new buyers should purchase a home at 75% of what they have been approved for a loan. just because one is approved doesn''t mean one has to get that amount as a loan. it also stated that every effort should be made to pay off early and that even one extra payment per year can make a difference over the long run. the article was really about returning to our grandparents values and not overloading ourselves with debt. and the writer doesn''t buy the idea that things cost more now, etc. his point of view is that things weren''t easy for our grandparents either and the only thing many of them bought on credit was a home.



mz

mz...I wrote that article.

sounds like us, we live by this thinking.

 

[meresal]

Date: 1/5/2010 11:13:17 PM
Author: gardengloves

Date: 1/5/2010 11:09:35 PM
Author: Dancing Fire

Date: 1/5/2010 10:37:36 PM

Author: movie zombie

yes, definitely did put 20% down. paying PMI is throwing $ out the window.


i read an article today that said we should return to buying a home, not a palace....or an investment. it also stated that new buyers should purchase a home at 75% of what they have been approved for a loan. just because one is approved doesn''t mean one has to get that amount as a loan. it also stated that every effort should be made to pay off early and that even one extra payment per year can make a difference over the long run. the article was really about returning to our grandparents values and not overloading ourselves with debt. and the writer doesn''t buy the idea that things cost more now, etc. his point of view is that things weren''t easy for our grandparents either and the only thing many of them bought on credit was a home.



mz

mz...I wrote that article.

sounds like us, we live by this thinking.

So do my husband and I, but we still aren''t putting the full 20% down.

We both have excellent credit ratings, no student loans, and never carry a balance on our credit cards (strictly use them to build credit). Not putting 20% down, does not make us financially irresponsible.

 

[zhuzhu]

We did.
I would say it is wise to put down as much as you can, provided that you have at least 6-8 month worth of emergency fund saved aside.

 

[upgrade]

What is this PMI you''re all talking about? I''m in Canada so maybe we don''t have it, or we call it something different?

 

[ProseCuter]

Put 100% down. Was much easier that way.

 

[meresal]

Date: 1/5/2010 11:26:15 PM
Author: upgrade
What is this PMI you're all talking about? I'm in Canada so maybe we don't have it, or we call it something different?

Private Mortgage Insurance

Just another fee that the bank allows themselves to charge if you don't put at least 20% down initially on the house.

ETA: You can also avoid it by carrying two mortgages, but that option is extremely hard to come by now, unless you have held a previous mortgage on a different dwelling.

 

[marcy]

We have a VA loan and while no down payment was required we put down 5%.

 

[ladypirate]

We were planning on putting 20% down and could afford to, but with the mortgage we got it wasn't necessary. Instead we put down 5% and used the rest of our down payment savings to make some improvements to the home. For us it was worth it because it added a fair amount to the value of the home which in the end was the same net result. We still got a 30 year fixed at a great interest rate (~4.75%) and are very happy with our upgrades.

ETA: I completely agree with not maxing out your buying potential. Just after we closed I got laid off and we were SO glad that we bought based off what we could afford on one income, even though we were approved for almost twice that.

 

[mayachel]

We purchased our first home three years ago (yup before the bubble burst) with about 25% down. It made a HUGE difference in our loan payments. We both entered the relationship as savers and I''d guess it was the accumulation of about 6 years each to be able to comfortably do so.

 

[hihowareyou]

we''ve saved 20% but due to job losses and pay cuts we would be stretching to be able to afford repayments on even the low low end of what was once our budget so are holding off. i can see two possible things happening, the property bubble that they''ve been saying will bust in australia for a few years finally will and the timing will be perfect for us... or prices will continue to rise and by the time we build our income back up we will be priced out of the market again.

 

[SapphireLover]

I am in the UK so things are a bit different over here.

We bought in 2006 and put down 5%. I totally agree with Movie Zombie. At the time, we were offered a mortgage that was over 5 times our combined incomes which is just ridiculous, and this is from a good lender that has come out as an example of good practice through the credit crunch. In the end we took out 3x combined incomes. We also went with the plan of buying a home and not an investment. We think we might be in negative equity, although that isn''t an issue as we have a house that we can live in (and hopefully have a baby in

). On the other hand, I do kick myself for not buying a house while I was at uni as an investment property. There was a really run down area that I thought of buying a house to rent out in, and didn''t in the end, and I would have made a really tidy sum on that.

 

[MishB]

We put down about 10% on our first home, bought about 4 1/2 years ago, and about 60% on our current home, due to profit on the sale of the first house, and a family inheritance.

 

[Logan Sapphire]

We bought our first house in May 2008 and put 20% down.

 

[studyer83]

Meresal, absolutely, it doesn''t (always) make sense for someone in your situation to put 20% down. What''s frustrating about this whole situation is that the banks, etc. couldn''t (or wouldn''t) differentiate between people like you, who may be able to deal w/ payments, equity issues, etc. even though you didn''t front equity for the house, and people for whom 20% was SUCH a financial stretch that clearly they would never be able to pay their mortgage.

As an additional rant, it is often true that a mortgage is less than rent. But it''s still not always better to "own" a 15-30 year mortgage than to rent. If housing prices collapse, new jobs open up elsewhere, the school system takes a turn for the worse, you are stuck in a hard to sell place if you''ve swapped interest payments for rent payments. Just a thought.

Date: 1/5/2010 11:22:54 PM
Author: meresal

So do my husband and I, but we still aren''t putting the full 20% down.


We both have excellent credit ratings, no student loans, and never carry a balance on our credit cards (strictly use them to build credit). Not putting 20% down, does not make us financially irresponsible.

 

[mayachel]

I just wanted to agree with the others who have differentiated between what they could afford, and what they were approved for. We both had excellent credit and were approved for what we thought was an amount semi-reasonable to the area. We put in bids on places at the top of our budget, and eventually bought something about 75% of what we were originally approved for. Once the heat of the looking and trying to close on a place was over we were SO happy that we didn''t go for the more expensive properties. It would have been very tight for a few years if we had.

 

[rhbgirl24]

There are many loans out there now that only require 3-3.5% down. Esp with this economy I think people have a harder and harder time putting down 20%. We are looking at home now and plan on putting down around 10%.

 

[Mrs Mitchell]

I''m in the UK, so probably different, but we shopped around for the mortgage that suited us best, then put down what it required (I think it was 5% but I can''t remember for sure). We chose it because it was one of the few mortgages available then that allowed additional one-off capital payments each year up to 100% of the loan without any penalty charges. We paid it off when our financial situation changed the next year, so for us it was a good choice. We didn''t have to have insurance though (other than building insurance).

The amount of money we could have borrowed on our combined salaries was truly shocking. We could not have managed the monthly payments at the top end of what we were offered unless we gave up eating, heating and clothes.

It was presented as no big deal by the bank (pre recession, obviously) and I can see how people over-stretch their finances.

We bought a house that we saw when we were out for a walk one day and we fell in love with. I''d have scrimped and saved to have it if necessary, but it fell comfortably within our affordable monthly payment range.

 

[janinegirly]

In this market, to obtain a mortgage from a credible bank you will need spotless credit, at least 20% down and be able to display steady income flow/provide tax returns etc. I don't think it's wise to put less down, if you can't afford it, don't buy it. Maybe I feel this way b/c I work for a (now) conservative bank.

We put down close to 30%. I wouldn't put down more even if I had it however since that is money that could potentially have more value somewhere else (stock market,etc.).

 

[DivaDiamond007]

DH and I just bought our first house (closed on October 30). We got a FHA loan and put down the required 3.5%. We also received a grant from the State of Ohio for 2.5% of the purchase price and used that towards the downpayment, so we actually paid 1% out of pocket. We lived with DH's parents for a little more than a year and saved for the house so we have money in savings to put back into the house and to use for emergencies. We moved in with his parents with the intention of saving a 50% downpayment, but living with the in-laws took a huge toll on our marriage and we had to get out. I'm happy with the amount that we put down even though we could have afforded to put down more.

ETA: Be bought a house that we can afford - although maybe not quite on one income. Our mortgage payment (including taxes, insurance and PMI) is less than what a similar house in a similar neighborhood would rent out for by about $200/month. When we applied for the mortgage we asked the loan officer to submit our pre-approval amount for what we were comfortable spending and not a penny more. Our house was listed at the top of our budget, but the purchase price was $5K lower than our top number so we are comfortable with what our mortgage payment is and don't feel strapped for cash. We both were making less money when we were pre-approved so we have more disposable income now than we initially thought we would - and right now it's being split between savings and paying off some debt (car and student loans).

I agree that too many first time buyers expect too much out of their first house. Our house is a standard starter home for the area that we live in - 2 bedrooms, 1 bathroom, detatched 1.5 car garage and finished basement. House was built in 1949, has central air, but has the original kitchen and needs some general TLC - new windows, siding and some yardwork/landscaping. There's no master suite in my house - our room is about 12x12 and the nursery is about 10x10 - itty bitty compared to a lot of the homes that are featured on HGTV. The upper level of our house is 720 sq. ft. and the basement is another 720 sq. ft. - so that's just over 1400 sq. ft. of liveable space. It's perfect for our family

 

[meresal]

Date: 1/6/2010 9:26:34 AM
Author: janinegirly
In this market, to obtain a mortgage from a credible bank you will need spotless credit, at least 20% down and be able to display steady income flow/provide tax returns etc. I don't think it's wise to put less down, if you can't afford it, don't buy it. Maybe I feel this way b/c I work for a (now) conservative bank.

This is not true. You do not have to have 20% down. However, you are right, you do have to provide almost everything under the sun proving that you have a steady job and have had one for at least 2 years.... plus numerous bank statements, including deposits and withdrawals, proving a history or financial stability.

There are plenty of mortgages out there that allow you to buy without 20% down, and HAVING spotless credit is what allows you to take advantage of them. Check out FHA, for at least one or two options. (3.5% and 5% are two that I remember, I think)

Less than 20% down doesn't mean you can't afford the house. There are TONS of people that put all they had into the 20% down, then one or both people lost their jobs, and bam, they couldn't make the payments. It gets pretty hard to pay when you get laid off and your ARM triples.

Just out of curiosity, I'm not attacking here I promise, can you explain why you don't think it is wise to put less than 20%? For some people, re: 20% down and 10% down, it may only be a difference of $100-$150/month. However, for that person, it would mean taking an extra $10k out of savings that you no longer have use of if there is an emergency.


Studyer83- I agree with your comment about buying not always being the best option. We have lived by this for 3 years, and is why we haven't bought sooner. It just wasn't "right for us"... eventhough the entire world wants you to believe it is a "Buyer's Market".

 

[Clairitek]

Date: 1/5/2010 11:22:54 PM
Author: meresal
So do my husband and I, but we still aren''t putting the full 20% down.

We both have excellent credit ratings, no student loans, and never carry a balance on our credit cards (strictly use them to build credit). Not putting 20% down, does not make us financially irresponsible.

We were in the same boat as Meresal and her husband when we bought our house in April of 2008. We put down 10% as that was all that was required by our mortgage program to avoid PMI. I don''t think that we are irresponsible home buyers because we didn''t fork over 10% more in cash.

 

[movie zombie]

Date: 1/6/2010 9:45:22 AM
Author: meresal

Date: 1/6/2010 9:26:34 AM
Author: janinegirly
In this market, to obtain a mortgage from a credible bank you will need spotless credit, at least 20% down and be able to display steady income flow/provide tax returns etc. I don''t think it''s wise to put less down, if you can''t afford it, don''t buy it. Maybe I feel this way b/c I work for a (now) conservative bank.

This is not true. You do not have to have 20% down. However, you are right, you do have to provide almost everything under the sun proving that you have a steady job and have had one for at least 2 years.... plus numerous bank statements, including deposits and withdrawals, proving a history or financial stability.

There are plenty of mortgages out there that allow you to buy without 20% down, and HAVING spotless credit is what allows you to take advantage of them. Check out FHA, for at least one or two options. (3.5% and 5% are two that I remember, I think)

Less than 20% down doesn''t mean you can''t afford the house. There are TONS of people that put all they had into the 20% down, then one or both people lost their jobs, and bam, they couldn''t make the payments. It gets pretty hard to pay when you get laid off and your ARM triples.

Just out of curiosity, I''m not attacking here I promise, can you explain why you don''t think it is wise to put less than 20%? For some people, re: 20% down and 10% down, it may only be a difference of $100-$150/month. However, for that person, it would mean taking an extra $10k out of savings that you no longer have use of if there is an emergency.


Studyer83- I agree with your comment about buying not always being the best option. We have lived by this for 3 years, and is why we haven''t bought sooner. It just wasn''t ''right for us''... eventhough the entire world wants you to believe it is a ''Buyer''s Market''.

and therein lies a big problem. in order to "afford" the home, many needed that ARM loan.....but their are disadvantages to getting one. most ARMs will go up above what a fixed rate would have been in the first place. the reason people go for an ARM is to be able to "afford" a home....when they really can''t.

putting less than 20% down means one pays PMI and PMI is hundreds of dollars per month.....that''s hundreds of dollars per month not paying down your principle.......personally, i don''t like paying for something that doesn''t benefit me but benefits the bank. PMI in effect is an insurance in case we default that is paid to the bank. we''re paying for their insurance.

buying a home on credit is a gamble. there are no guarantees. we all take that risks when we take out a mortgage. none of us are immune to the possibility of losing everything we put into it. its our choice. the alternative is that we can save our $ for all our life and buy a home with cash. most of us are unwilling to do that.

yes, for many their is never going to be a right time to buy. that has been true for most of US history. it is not until after WWII that we have an economy based on new housing starts and GI loans with $ for buying homes. finally the masses could afford to be home owners. this worked......until the latest move that opened up the market to the point that the economy almost collapsed. it was a wakeup call not just for the mortgage and housing industry but for we consumers as well.

while it is the american dream to own a home, it is not an american right to own a home.


mz

 

[meresal]

Date: 1/6/2010 10:18:03 AM
Author: movie zombie

Date: 1/6/2010 9:45:22 AM
Author: meresal

Date: 1/6/2010 9:26:34 AM
Author: janinegirly
In this market, to obtain a mortgage from a credible bank you will need spotless credit, at least 20% down and be able to display steady income flow/provide tax returns etc. I don't think it's wise to put less down, if you can't afford it, don't buy it. Maybe I feel this way b/c I work for a (now) conservative bank.

This is not true. You do not have to have 20% down. However, you are right, you do have to provide almost everything under the sun proving that you have a steady job and have had one for at least 2 years.... plus numerous bank statements, including deposits and withdrawals, proving a history or financial stability.

There are plenty of mortgages out there that allow you to buy without 20% down, and HAVING spotless credit is what allows you to take advantage of them. Check out FHA, for at least one or two options. (3.5% and 5% are two that I remember, I think)

Less than 20% down doesn't mean you can't afford the house. There are TONS of people that put all they had into the 20% down, then one or both people lost their jobs, and bam, they couldn't make the payments. It gets pretty hard to pay when you get laid off and your ARM triples.

Just out of curiosity, I'm not attacking here I promise, can you explain why you don't think it is wise to put less than 20%? For some people, re: 20% down and 10% down, it may only be a difference of $100-$150/month. However, for that person, it would mean taking an extra $10k out of savings that you no longer have use of if there is an emergency.


Studyer83- I agree with your comment about buying not always being the best option. We have lived by this for 3 years, and is why we haven't bought sooner. It just wasn't 'right for us'... eventhough the entire world wants you to believe it is a 'Buyer's Market'.

and therein lies a big problem. in order to 'afford' the home, many needed that ARM loan.....but their are disadvantages to getting one. most ARMs will go up above what a fixed rate would have been in the first place. the reason people go for an ARM is to be able to 'afford' a home....when they really can't.

putting less than 20% down means one pays PMI and PMI is hundreds of dollars per month.....that's hundreds of dollars per month not paying down your principle.......personally, i don't like paying for something that doesn't benefit me but benefits the bank. PMI in effect is an insurance in case we default that is paid to the bank. we're paying for their insurance.

buying a home on credit is a gamble. there are no guarantees. we all take that risks when we take out a mortgage. none of us are immune to the possibility of losing everything we put into it. its our choice. the alternative is that we can save our $ for all our life and buy a home with cash. most of us are unwilling to do that.

yes, for many their is never going to be a right time to buy. that has been true for most of US history. it is not until after WWII that we have an economy based on new housing starts and GI loans with $ for buying homes. finally the masses could afford to be home owners. this worked......until the latest move that opened up the market to the point that the economy almost collapsed. it was a wakeup call not just for the mortgage and housing industry but for we consumers as well.

while it is the american dream to own a home, it is not an american right to own a home.


mz

That is the past, and when I mentioned ARM's I was referring to why problems occured before now. I have NEVER and will NEVER sign a contract with an ARM.

PMI is only hundreds of dollars a month if you buy an enormous house or one with an enormous price tag. Ours is barely going to be over $50/month. Which, like I said earlier, to me is less of a problem then forking over an extra $20k that my family could need in an emergency.

We will have 20% of our house paid off within 16 months of buying, which is only about $1000 in PMI payments to the bank. If we were to stay in our apt those extra 16 months, we would end up paying almost $5000 over what our mortgage payment is going to be. Different things work for different people, but holding onto money I know I could need is more important to me than meeting some "20% quota" that people seem to think is the be-all-end-all of financially stability.

PMI is not always a horrible thing. Yes it is money that we could be using somewhere else, but it is still much much less than what we would have to give up in order to make the 20% down. PMI is not always a bad thing, it can be used to your advantage.

I think we have made a complete circle...

People can say that we shouldn't be buying a house because we don't have 20% down, but then explain to me why renting a 2-bdrm apartment that is $300/month more than my mortgage payment(for a 4 bdrm house) is "better" for my financial stability, in the long run.

Apartment prices are why so many kids live at home after school now. They are a waste of money and the good ones are hardly affordable without steady salaried jobs.

If you haven't been around to see the prices of a SAFE apartment community in a nice area, then maybe you should check it out. They are the waste of money, not PMI.

ETA: I am excluding any areas with exorbitant housing prices to not be included in these apartment views (ie, NYC and California...)

 

[steph72276]

I think different things work for different people. The ideal would be to put down at least 20% AND to have a healthy emergency fund. We bought a house before we had saved 20% because quite honestly, years ago I wasn''t as financially savvy as I am now, and it was more about wanting to get into a house sooner than later and like Meresal wanting to save our savings for emergencies that might come up. Looking back, that probably wasn''t the most financially sound approach, but it has worked out just fine for us. We are now focused on our financial well being and have a plan to pay off our mortgage completely in 7 years.

 

[janinegirly]

meresal: the 20% figure is to protect the bank''s interest too. A major cause of the current econoimic crisis was due to people buying houses they couldn''t afford, putting down 0-10% with no doc loans on adjustable rate mortgages they didnt'' understand. If an individual however chooses to put down less so they can utilize the cash to put in other investment vehicles AND can afford the monthly mortgage payment easily (plus property taxes which are hefty in my area at least) then it may be a good decision. We bought our house end of ''08, so banks may have eased off since then, but for us, the fact that we were able to put down over 20% plus solid credit made things move alot quicker. Most banks that I''m familiar are alot more wary of mortgage applicants who do not have the funds to put down 20%.

 

[Smurfysmiles]

I have to agree with that renting is a total waste of money. We have been paying what we could be paying on a house mortgage for 2 years but that is just the reality until we can get our credit scores boosted up after having them seriously affected because of job loss. meh.