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If it were me, I would put the 20% down and put what I would've paid in PMI back into the emergency account every month.
Well count me in on the "stay liquid" column. Liquidity is more important than equity. For that reason consider PMI part of the cost of borrowing money and move on. PMI is no more "wasteful" than interest on the loan now is it? People need to stop singling out PMI as any more evil than the very architecture of real estate transactional costs (people talk about rent-seekers, have you been to a title company?). Saving up the PMI differential over an amortization period of years is not as valuable as having the total amount in the bank TODAY. Preserve your liquid. If that means you can't really afford a home, then there's your answer. But not for one second believe equity is more important than liquidity. If you can't afford to have the necessary cash reserves on hand as part of a real estate transaction then preserving your cash is always more valuable than pumping equity into a liability. In order to recoup its liquid (the actual value you CAN use for things other than storing an appraisal form in a computer hard drive) you have to remove your shelter from over your head, that's senseless.
If PMI is the thing that makes or breaks your bottom line in terms of being comfortable with your total monthly housing cost, you can't afford said home.
The only problem with getting re-appraised is that most lenders (or some, I shouldn't say most, but most of the ones I've used) won't reappraise to remove PMI for two years, regardless of how much you pay down the principle or how the market appreciates. I found that out when I was trying to refi a condo I had bought 6 months earlier during the boom. I was well above the 80/20 threshold and they said nope, not for two years.
Yeah, it depends on how much the PMI is going to be. At least from my experience, they won't allow reassessing it until a few years later. But it does depend on the PMI. My first PMI was a one time flat rate, which was unusual, but pretty cheap.
In the process of buying in an area that is more expensive than my current area. Had not planned on moving, but getting relocated seems to be part of life. With that said, some of my stocks took a hit last year and I'm not as liquid as I would like to be. I have a separate emergency account with 6 months of savings, and am thinking of dipping into it to make a 20% down payment on the new house. This would take about 50% of the account. What do you think...put down 10-15% and pay PMI for a year or two, or go for the 20% and have a little more 'downside exposure'. I lean toward the latter...I work with a Fortune 500 company and I believe my position is stable.
Why not rent the smallest most affordable place you can find that is comfortable? Unless you have a 10 year contract guaranteeing your income, you never know what could happen in the future---how much lower real estate prices will go; how many new taxes the Obama Adminstration will enact; how bad inflation will be as far as jacking up the price of food or whether you'll keep your job or have to accept a drastic cut in pay (as many people did during the depression) as we endure hard times upon us.
Well count me in on the "stay liquid" column. Liquidity is more important than equity. For that reason consider PMI part of the cost of borrowing money and move on. PMI is no more "wasteful" than interest on the loan now is it? People need to stop singling out PMI as any more evil than the very architecture of real estate transactional costs (people talk about rent-seekers, have you been to a title company?). Saving up the PMI differential over an amortization period of years is not as valuable as having the total amount in the bank TODAY. Preserve your liquid. If that means you can't really afford a home, then there's your answer. But not for one second believe equity is more important than liquidity. If you can't afford to have the necessary cash reserves on hand as part of a real estate transaction then preserving your cash is always more valuable than pumping equity into a liability. In order to recoup its liquid (the actual value you CAN use for things other than storing an appraisal form in a computer hard drive) you have to remove your shelter from over your head, that's senseless.
If PMI is the thing that makes or breaks your bottom line in terms of being comfortable with your total monthly housing cost, you can't afford said home.
I think hindsight is right you should consider less house and hold on to your savings. I get the impression that you think you only have these two choices with PMI or half the savings; you don't. You are moving to a new area and your future is uncertain. I would look for less expensive houses so you can afford it without using your savings.
The full weight of the recession has not even hit Texas yet.
And what if rates are higher or prices continue to decline?
Are you an agent? Just curious.
if rates are higher and prices continue to decline, then no harm, no foul, you continue to reinburse your "emergency" fund monthly just like you were paying into your mortgage.
Interesting comments...I would like to buy because my employer will take care of many of the costs if I do it within a year, and its a nice tax break. I'm more inclined to start selling the stocks I lost money in, as a way to cushion the blow. I can pair them with a couple winners I bought.
if rates are higher and prices continue to decline, then no harm, no foul, you continue to reinburse your "emergency" fund monthly just like you were paying into your mortgage.
Not an agent, I invest in properties..
Gotcha. I don't think I would do your scenario if I had another way to get the house. He does. Makes more sense to me to take the other 10% from himself and then reimburse the fund instead of paying a useless add-on fee for a year.
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and I'm not as liquid as I would like to be. I have a separate emergency account with 6 months of savings, and am thinking of dipping into it to make a 20% down payment on the new house. This would take about 50% of the account. What do you think...put down 10-15% and pay PMI for a year or two, or go for the 20% and have a little more 'downside exposure'. I lean toward the latter...I work with a Fortune 500 company and I believe
my position is stable.
I agree with this and believe you
