"Today" does it make sense to make 20% down payment? (Charlotte: sale, real estate market)
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Considering current scenario in Charlotte where housing market 'might' have bottomed out but job market and economy is still fragile. For those who have "diligently saved 20%" for a downpayment does it make sense to put it all down?? (This is not a debate for buying v/s renting)
I ask your opinion for a couple of reasons.
1. Credit is available at a relatively cheap rate (apparently interest rates are at a historical low...the knowledgeable ones please chime in)
2. Would you rather put down only 5% for a 30 yr fixed rate loan and invest the rest in other instruments that offer higher returns than what you pay for mortgage.
I see the following advantages with 5% down. Those who have already reached a decision of owning the house will boost the economy by buying real estate. Apparently every house sold generates jobs for other professionals tied to real estate does not matter if it was sold for 5% down or 20% down since it will aid economy.
The rest 15% that can be invested will spur further revival. Those with good investment acumen/ ideas please provide such options here.
If you can get a loan with 5% down, do it. Especially if you can realize higher returns elsewhere (where *is* that higher return, btw).
How many lenders will issue a loan with 5% down, that's my question? With interest rates at such historical lows, banks are not really motivated to give their money away.
Considering current scenario in Charlotte where housing market 'might' have bottomed out but job market and economy is still fragile. For those who have "diligently saved 20%" for a downpayment does it make sense to put it all down?? (This is not a debate for buying v/s renting)
I ask your opinion for a couple of reasons.
1. Credit is available at a relatively cheap rate (apparently interest rates are at a historical low...the knowledgeable ones please chime in) Yes. Credit will not and cannot get any cheaper for those who are well qualified.
2. Would you rather put down only 5% for a 30 yr fixed rate loan and invest the rest in other instruments that offer higher returns than what you pay for mortgage. From a monthly cash flow perspective: This would depend on how comfortable you would be with your monthly cash flow under each scenario. If only putting 5% down could potentially put you in a bind regarding the monthly mortgage, I would give myself some extra slack by putting down a little more.
From an investment perspective: Going rate as of today is 3.66%, so assuming for example your marginal tax rate is 25%, your effective interest rate is only 2.75%. Congress could someday repeal this tax break, but I doubt they will any time soon, given the current climate. However, that is a GUARANTEED COST of 2.75%, whereas any GUARANTEED RETURN on investment will likely yield less, although there is an excellent chance you can get a better ROI than 2.75%, it just won't be guaranteed.
I see the following advantages with 5% down. Those who have already reached a decision of owning the house will boost the economy by buying real estate. Apparently every house sold generates jobs for other professionals tied to real estate does not matter if it was sold for 5% down or 20% down since it will aid economy.
The rest 15% that can be invested will spur further revival. Those with good investment acumen/ ideas please provide such options here. My only investment advice is to stay away from the stock market for the foreseeable future. There is a perfect storm brewing.
If you can get a loan with 5% down, do it. Especially if you can realize higher returns elsewhere (where *is* that higher return, btw).
How many lenders will issue a loan with 5% down, that's my question? With interest rates at such historical lows, banks are not really motivated to give their money away.
It largely depends upon how long you plan to stay in the house, what you can afford to pay in monthly payments, how stable your job might be, and whether you think that walking away from your mortgage is an option.
Past common wisdom was to put the least down on a house because traditionally, the way in which Americans increased their wealth was through the appreciation of their houses. Anyone who bought more than they could really afford during the past ten years and didn't flip it before the 2008 crash has walked away from his mortgage by now (or is thinking about doing so). So much for past common wisdom.
If you have any trepidations regarding home finance and the stability of your job, you shouldn't even consider owning at this time. Rent until the market improves and your job security (or perception of it) stabilizes.
When we first moved to Charlotte in the early '90's, we had relatively low-paying bank jobs. We saw Charlotte as a pretty good real estate market. We made money on the sale of our first house (in another state) after being in it for only two years. We put the least we could down on that house. The money we made on that house we put into our new house in south Charlotte and took out a fifteen year loan and paid it off in ten years (on a combined salary of less than $250,000 per year). That was a smart move fifteen years ago, but I wouldn't recommend anyone at the mean salary level and who works in an unstable position to do that today.
If your job is stable, and you have the cash, go shopping for a house NOW. Figure what you can afford per month and adjust your down payment accordingly. It is a buyer's market, so don't necessarily seek super-affordability in a home. Go for the neighborhood and square footage. In ten years, this recession will be over, and you'll have a goldmine on your hands.
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