20 vs 25% down on home & approximate selling % (Howe, Wells: real estate, mortgage)

[clickbear]

Question #1

I'm trying to weight the scenario of a 20 vs 25% down payment in about 24-30 months for a home that is approximately 250K. I would like to save just 20% since I can pay off some student loans that is a variable rate and increasing. However, I don't want to regret needing the extra 5% when trying to purchase later on down the road.

I realize the interest over time would be more, but am more concerned about the negative impact of a 20% vs 25% for the acquiring the purchase. From what I understand, I would still not have to pay a PIP and still be eligible for the lowest rate. After getting some kids out of daycare, I will be able to apply more per month towards the principal if needed.

The only 2 impacts I see potentially are
1. being outbid by a stronger down payment (25% and up)
2. the appraisal falling short of the sell price.

I know there isn't a crystal ball to predict what might happen, but in MOST situations I wonder if I'm asking for a potential problem without taking on the extra 5% to save (which would take about 12 more months in the end since I want to pay off a student loan).

For those who have experience with this similar scenario am I missing anything?

Question #2

What is the approximate % I need to assume will not be retained based on the purchase price of when I sell my current home? Is 8-9% a good approximate percentage when factoring in realtor fees, closing costs, etc? I want to have a rough estimate on how much equity I might retain when selling my current home.

Question #3

How long does it typically take for a seller to receive a check if a loan is approved for a buyer and I retain some equity?

Thanks for the help. I do have a buyer's agent I used 6 years ago with success, but I always like to get information from multiple perspectives.

[cristobalg]

Mortgage rates are very cheap, as is PMI. Best thing to do is to pay off the higher interest loans and put down less than 20% and pay the PMI. If you have decent credit, your PMI would be around 110.00 per month for a 250k mortgage with 10% down. Do the math of 110.00 per month multiplied by x number of months until you get to 25k.

[MckinneyOwnr]

There is absolutely no reason to pay PMI if you don't have to. From what I understand, they recently changed the rules regarding PMI for FHA loans, you used to only have to pay PMI for 5 years, if at that time the equity in the house was over 20%, you could stop paying it. But now, on new home loans, you have to pay it for a much longer period, regardless of what your equity is.

Yes, just looked it up. You'll have to pay a minimum of 11 years of PMI vs the old 5 year term, if you put down greater than 10%. If you put down less than 10%, you have to pay PMI for the entire length of the mortgage, not good. I'm not sure if conventional mortgages have changed in a similar manner or not, but I'd definitely look into it before deciding.

[HockDad]

Originally Posted by cristobalg

Mortgage rates are very cheap, as is PMI. Best thing to do is to pay off the higher interest loans and put down less than 20% and pay the PMI. If you have decent credit, your PMI would be around 110.00 per month for a 250k mortgage with 10% down. Do the math of 110.00 per month multiplied by x number of months until you get to 25k.

I would put down the 20%. It will open up lower rates. Moreover, if you can't afford 20% down, there is a decent argument that you can't afford a house.

That being said, I would keep extra money back and not pay 25%. You can also pay down extra principal every month, but it gives you options and lets you build up an emergency fund. When I purchased my current house, I considered a 15 year mortgage, but I was somewhat concerned by the high payment. Instead, I took out a 30 year mortgage, but I pay extra every month (about what I would have paid with a 15 year mortgage). I won't pay off the house quite as quick (it might take 17-19 years), but about once a year I am happy that I have a lower mortgage payment when my AC breaks, need a new car, etc.

As for how much you lose in transaction costs, I always budget 10%. 6% for real estate fees, 1-3% reduction in the price of the house, closing costs, repairs you have to make on the house, and moving costs.

[clickbear]

Thanks HockDad! Your posts are always insightful. I'm leaning towards the 20% and this would include as already having the emergency fund still in tact.

I'm just hoping 20% isn't a weak offer that gets outbid with the craziness we have seen in the area the past few years.

[serger]

On #3 (assuming I understand the question correctly) - transactions take place on the closing day. After all the paper work is signed by you and your buyer, the title company will get your buyer's money and then will wire whatever your part is to your bank account. To show up in your account might take a couple of days (for instance, if the transaction is just before a weekend and such).

[SonySung11]

You must keep some money for unforeseen expenses. If you need to wait then its fine, don't rush unless you are ready. It doesn't matter you buy a new home or old, there will be expenses you didn't anticipate.

[clickbear]

Originally Posted by serger

On #3 (assuming I understand the question correctly) - transactions take place on the closing day. After all the paper work is signed by you and your buyer, the title company will get your buyer's money and then will wire whatever your part is to your bank account. To show up in your account might take a couple of days (for instance, if the transaction is just before a weekend and such).

That is correct.

[TR95]

Originally Posted by MckinneyOwnr

There is absolutely no reason to pay PMI if you don't have to. From what I understand, they recently changed the rules regarding PMI for FHA loans, you used to only have to pay PMI for 5 years, if at that time the equity in the house was over 20%, you could stop paying it. But now, on new home loans, you have to pay it for a much longer period, regardless of what your equity is.

Yes, just looked it up. You'll have to pay a minimum of 11 years of PMI vs the old 5 year term, if you put down greater than 10%. If you put down less than 10%, you have to pay PMI for the entire length of the mortgage, not good. I'm not sure if conventional mortgages have changed in a similar manner or not, but I'd definitely look into it before deciding.

I put 10% down with a conventional loan with Wells Fargo in Mar 2012. In order to have PMI removed, I can order an appraisal that shows I have 22% equity, but the sole reason must be due to structural improvements and cannot include any market appreciation. After two years, you can include market appreciation to get to the 22%. That was in 2012, things might be different now that the new "qualified" mortgage standards started a few weeks ago.

If you have good credit go with a conventional as PMI rates are lower, around 0.5% or less of the loan amount as compared to an FHA loan with an upfront 1.5% payment then annual 0.5% payments.

[frenzyrider]

Originally Posted by TR95

I put 10% down with a conventional loan with Wells Fargo in Mar 2012. In order to have PMI removed, I can order an appraisal that shows I have 22% equity, but the sole reason must be due to structural improvements and cannot include any market appreciation. After two years, you can include market appreciation to get to the 22%. That was in 2012, things might be different now that the new "qualified" mortgage standards started a few weeks ago.

If you have good credit go with a conventional as PMI rates are lower, around 0.5% or less of the loan amount as compared to an FHA loan with an upfront 1.5% payment then annual 0.5% payments.

I would say that even in 2012, there was a minimum period to hold the PMI regardless of you able to inject more equity. I think the period was 36 months in general. You can reorder appraisal all you want but unless you go through 36 months from the original purchase date, the PMI will not be removed. It was not something said explicitly, it was in the actual loan agreement!