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I sold my house about a year ago and am planning to soon buy another one. My old house had been a fixer-upper and I was lucky to turn a good profit on the sale. Since I now intend to move to a less expensive area, I was originally planning to use the entire profit as a down-payment and end up with a very small mortgage, assuming that it was best to make the largest down-payment one can afford. Recently I was advised by a friend to reconsider this, since I would forever lose the possibility of taking a decent mortgage deduction on my taxes. Instead, he suggested that I might do better by keeping a larger portion of the profit in a CD or similar account that earns reliable if fairly low interest and drawing on that account to meet my monthly mortgage payments, if need be. I am in my early forties and, though I don’t earn a high income, I have appreciated the mortgage deduction over the years. Does anyone have any thoughts on this? Will lenders qualify me for a higher mortage than my income warrants if I have the money in the bank instead? Is there anything else I should consider? Many thanks!
Don't bother locking up your funds with low paying US bonds or CDs. The USD is in the gutter because our rates are too low. Go with foreign bonds that pay up to 14% per annum. Even the Australian 10 year paying > 6%. Now locking your funds away in a US bank earning 2% to maybe 3%? Yes, that would be rather silly.
Well...Remember, if you roll the money you made on the last house into a new one you forgo the Taxes....Second, you want to at least pay 20% down to do away with your PMI Insurance....That is money just wasted. If you want the deduction then after you buy look at a home equity loan...You can deduct that on your taxes....
Yes the last post was correct about avoiding the PMI by putting down 20%. But they also have the 10-10 mortgage (no PMI) if it is still available where you put down 10% and take out a second on your instant equity to = your 20%. They might not be doing those mortgages now.
Anyway lets try it this way:
If you put down 10% of a $100,000 home. That is $10,000.
If the home appreciates 10% in a year it is now worth $110,000.
You doubled your $10,000 investment. You made a 100% profit.
Now:
Same $100,000 house but you put down half, or $50,000
In the same one year the house appreciates the same 10% or $10,000
Your $50,000 investment made you $10,000. Not as attractive sounding is it . What percentage is this?
In the first example you get to use the banks money for other ventures. Always put the minimum down payment. Do you think Donald Trump pays cash for his mega million dollar buildings just because he can? He puts down almost nothing on them.
Yes the last post was correct about avoiding the PMI by putting down 20%. But they also have the 10-10 mortgage (no PMI) if it is still available where you put down 10% and take out a second on your instant equity to = your 20%. They might not be doing those mortgages now.
Anyway lets try it this way:
If you put down 10% of a $100,000 home. That is $10,000.
If the home appreciates 10% in a year it is now worth $110,000.
You doubled your $10,000 investment. You made a 100% profit.
Now:
Same $100,000 house but you put down half, or $50,000
In the same one year the house appreciates the same 10% or $10,000
Your $50,000 investment made you $10,000. Not as attractive sounding is it . What percentage is this?
In the first example you get to use the banks money for other ventures. Always put the minimum down payment. Do you think Donald Trump pays cash for his mega million dollar buildings just because he can? He puts down almost nothing on them.
Before taking out an 80% loan, 10% second, with 10% down, I advise people to do the math.. usually its cheaper to take the 90% loan out and pay the PMI because the interest rate on the 2nd is higher. Not always the case, but often it is.
....
In the first example you get to use the banks money for other ventures. Always put the minimum down payment. Do you think Donald Trump pays cash for his mega million dollar buildings just because he can? He puts down almost nothing on them.
most of us are not donald trump. the more u put down...the lower ur monthly mortgage payment will be. donald trump doesnt live in the building he builds except for the trump towers. for most of us...home is a long term investment...so every little down payment goes toward ur home help. what happen if u were to lose a job? for every $1000 u put down...u reduce ur monthly mortgage by $7.
Last edited by vincentnyc; 04-01-2008 at 11:56 AM..
Location: central, between Pepe's Tacos and Roberto's
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If possible, I would put down 20% to avoid the PMI and invest the rest. You don't want to be house poor, but you don't want to be cash poor either. Of course the tax deduction is nice, but it is usually not nice enough to warrant paying long term interest. Couple it with some cash in an interest bearing vehicle, however, and you've got something to work with.
Regarding your question about qualifying for a higher mortgage than your income allows, bad idea. Do not over extend yourself.
Well, My husband and I put over 50% down. It reduced the monthly payments to a very low amount, which we both like. Also if either one of us loses our job for whatever reason, the other could still make the payments, though other household expenses would be very tight.
The only downside I personally see is we bought in So Cal, and I'm worried we may have lost some of our actual $$$ since houses are down so much.
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Keep away from the PMI
