Always do 20% down as long as you can do it? (insurance, loans)

[midlifeman]

Your gut is spot on. Don't put more money down then you have to because you are right that you can earn more money elsewhere than tying up money in your house. Let's look at the facts: 4% 30 year mortgage is more like 2.5% loan when you factor the interest deduction. Can you beat a 2.5% rate of return?....Yes!
Real Estate investing (not flipping), owning your own business, and even the stock market over the long term (9.6% according to ibboton and associates) are all great investments. You can pay down your mortgage anytime, but the goal in life is Build your wealth, not burry it in your house.

[snowdenscold]

Originally Posted by terrence81

The 20% rule is silly to me if you can do 10% and still afford your mortgage then just do that.

It's not just current affordability from a monthly payment perspective.

20% has been the rule (or lower with PMI to offset it) to protect against foreclosure risk. If you have substantial enough equity in your home you'd be much less likely to walk away since you have a lot more to lose, you'd feel more of a sense of ownership in it, and you are also protected from going underwater if your house value dips a bit.

[SallyField]

20% down will definitely get you a better loan; however, you know you should not put 20% down if it eliminates your emergency reserves. That's it, in a nutshell. It's up to you to decide whether putting 20% down eliminates your emergency funds (and how quickly you can replenish those funds), but generally you should have enough liquid to be able to survive 6 months, maybe more, without a job. If you can put down 20% and replenish your emergency fund, I'd say put down 20%. Otherwise, no.

Another thing to figure into your calculus is that you should not count on stocks being an 8% return. Have you really been getting 8% on your stock portfolio? I am not a doom and gloomer, but stocks in general have been flat and could continue to be flat. Here's some interesting reading for the economist in you, regarding Japan's stagnant economy and monetary policy in the 1990s. This was written before the burst of the US housing loan bubble and the similarity to the current US economy is striking: http://www.nber.org/chapters/c0092.pdf

[FCNova]

Originally Posted by midlifeman

Your gut is spot on. Don't put more money down then you have to because you are right that you can earn more money elsewhere than tying up money in your house. Let's look at the facts: 4% 30 year mortgage is more like 2.5% loan when you factor the interest deduction. Can you beat a 2.5% rate of return?....Yes!
Real Estate investing (not flipping), owning your own business, and even the stock market over the long term (9.6% according to ibboton and associates) are all great investments. You can pay down your mortgage anytime, but the goal in life is Build your wealth, not burry it in your house.

You're ignoring PMI. The point of putting 20% down is to avoid PMI for the first 4-5 years, greatly reducing your fees on the loan. If there was no PMI then the play would be to put nothing down, and invest your money elsewhere, because you're right there are much better investment vehicles than a house. But that's not the case. You're going to have to generate a much larger return than 2.5% to offset those PMI fees.

[jnojr]

Originally Posted by saganista

No, it's actually impossible for the government to cut spending. The most it can do is temporarily slow the rate of growth.

Absolutely untrue. Look at what's happening in Europe... they don't have tax revenue and cannot borrow any more. They don't even have the option of printing money... they're reliant upon bailouts from the ECB, and those are ending.

We cannot sell an unlimited number of Treasuries. At some point, investors will say no more, unless you pay more interest.

Spending WILL be cut. Not voluntarily, but it is mathematically impossible to continue spending the way we are. math doesn't know anything about politics, not does it care.

[khuntrevor]

"Should I buy a townhouse?"....AT WHAT PRICE? There are many other areas better for investment. My TH in Phoenix grosses 30%+ annually. Paid 22K and rents for 569. Same tenant 18 months.....zero calls, and zero calls to the property manager. They built the most modern fitness center in The West on the abandoned golf course......doesn't cost me a Dime. So let's say you spent 325K for a very working class TH.....Rent would be about 1700. Generally, only pay 8-12 times annual rent. 15 if it is an exceptional property, with a finite supply...in-fill, college towns, etc....However, you can find perfectly good condos in some of the poster cities (LV, PHX, TUS, Miami, Orlando) at 3-4 x annual rent. We have Canadian investors here that are buying without looking. It's mostly a numbers game.

[stealthology]

Originally Posted by saganista

First, only fools expect more than a 2% net annual real rate of return from the stock market.

I'm pretty sure you are pretty incorrect on that one. Investing in the long term, over decades has been proven to generate quite a bit more; my personal prediction for the next couple decades is 5-7% per year, even though history says it should be higher.

[saganista]

Originally Posted by terrence81

Putting as much down as possible is always a good thing but if you're going to lose sleep at night then don't do it.

Cash flow needs to be the #1 criterion. If tying up liquid assets in just about the most illiquid asset that anyone will ever own leaves you exposed in terms of being confident in an ability to provide the things that you and your family need now and will need in the foreseeable future, then avoid doing that.

Originally Posted by terrence81

I personally plan to do an FHA loan where you only have to do 3.5% down. I simply don't have the kind of money to put 20% down especially in this part of the country. The 20% rule is silly to me if you can do 10% and still afford your mortgage then just do that.

FHA is about the best deal in town these days Nobody below the at least borderline wealthy to start out with can afford 20% down on a credible home in this area while still in the early earning stages of a career. If the steps for home ownership include "First, get rich..." or "First, get past your 50th birthday..." then something is very wrong.

[saganista]

Originally Posted by snowdenscold

...and you are also protected from going underwater if your house value dips a bit.

Protected from what? Being "underwater" has no effect whatsoever on a homeowner unless he is somehow forced to put that home into the market. Losing your job and hence your income could be a serious problem, but ups and downs in home prices when one is not intending to sell a home anyway are meaningless.

[saganista]

Originally Posted by SallyField

...generally you should have enough liquid to be able to survive 6 months, maybe more, without a job.

Yes, that's the sort of figure that many "financial advisors" throw around. They might as well well say, "First, win Powerball." Almost nobody has either six months of liquid reserves on hand or the realistic hope of accumulating it. This simply isn't a realistic standard to be preaching anymore.

Originally Posted by SallyField

Here's some interesting reading for the economist in you, regarding Japan's stagnant economy and monetary policy in the 1990s. This was written before the burst of the US housing loan bubble and the similarity to the current US economy is striking:

Most of the typically alleged similarities are superficial, while the differences are fundamental. Japan did not for instance precipitate an international credit crisis that nearly spawned a global depression. We in the US repeatedly hear but ignore mistaken economic ideas recommended by the right, while conservative-minded Japanese officials repeatedly fell into them. They ended up prolonging their smaller problems, while we have made fair to good progress in moving past our larger ones. Not really the same thing there at all.