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I thought about this too, but it's really only worth it with the rate and the deduction combined, which caps at $750,000 borrowed. I suppose most buyers aren't going to borrow over $750,000, but it is a consideration to make.
With my upcoming home I close on in a few weeks, I will put down around 25% and get a mortgage that's a little over $1 million, then once I sell the old place, use some of the proceeds from that to pay the mortgage down to $750,000 and put the rest back into liquid assets (stocks).
There was an earlier comment about prices in their local market being too high to put 20% down. In my experience (Boston), I actually find that the higher priced places are the ones most likely to have someone putting at least 20% down because the pool of buyers for them are already sitting on piles of liquid assets. Many of these properties are selling with no contingencies, which, coupled with the price, means if there is a mortgage involved, it's a jumbo so it has to be at least 10% but more likely at least 20%. I just don't see any realistic scenario where the $1-2 million condos are being picked up with 0-5% down.
It's the cheaper homes out in the rural areas and exurbs that I think there's more low/no down payment mortgages happening on. Given they're the lion's share of home purchases, this may well lead to the data that suggests most people don't put 20% down.
Makes sense, just like the auto industry. It also explains all the foreclosures just like the auto industry has repossessions. Folks take out big loans to get cheaper/rural homes just so they can have something then SURPRISE some of them can’t pay it. Alternatively you have others who get loans to live in those more expensive areas you mentioned and some of those folks get foreclosed on too. I don’t have any stats offhand for which kind gets foreclosed on more but I always figured it was the latter.
I read on here about the $1,000,000 homes and huge mortgages. It sure makes me glad my ancestors chose to live in a low COL place with a high standard of living--(Middle Tennessee).
I've had homes of 4,400 square feet, 4,200 square feet, 3,500 square feet, 5,200 square feet and 3905 square feet in the last 32 years, and never had a payment over $800 per month. And as a early retiree for the last 12 years, it's especially nice to have had no mortgages on my two houses. And since my wife was disabled, we have no property taxes on our main house.
I guess we all just have a different sense of reality. I still prefer to live frugally, no matter what my Fidelity statement says. Now I've got to face RMD's in the future--even though we have nothing to do with the monies.
I've been lurking around the old threads and it seems like on on here it is more common people don't put down 20% rather than the other way.
I know it is possible to put down as little as 3% or even 0% if you're a veteran. However, I could never imagine doing it. But I like to be open minded. Maybe I'm missing out.
For folks who put down a very, very small amount what were your reasons for doing so? How did it benefit you? Or is it something you soon regretted?
Why would I tie up so much money in a house?
I am talking years of my life savings, no thanks, rather have that cash and finance as much as possible. I had a VA loan, so no PMI. I do understand tossing the money there to avoid the PMI.
But why stop at 20%? Why not 30, or 50%?
But at that, it is difficult to save that much, housing prices and rent have gone up a lot, a whole lot.
Makes sense, just like the auto industry. It also explains all the foreclosures just like the auto industry has repossessions. Folks take out big loans to get cheaper/rural homes just so they can have something then SURPRISE some of them can’t pay it. Alternatively you have others who get loans to live in those more expensive areas you mentioned and some of those folks get foreclosed on too. I don’t have any stats offhand for which kind gets foreclosed on more but I always figured it was the latter.
Just looking in the Northeast, New Hampshire and Rhode Island each have double the foreclosure rate of Massachusetts, despite MA having a significantly higher housing cost than either. Maine is the worst state for foreclosures; Vermont is the best.
It doesn't really say anything one way or the other about cost vs foreclosure rate, though.
One thing to consider on the cheap vs. expensive question of foreclosures though is to consider what's considered "expensive" to an individual. You yourself asked why more people don't put 20% down. The answer is going to boil down to lack of money. Many people don't have 20%, won't have 20%, or need the 20% they do have saved for other things. They take out higher LTV conforming mortgages and trade a larger monthly expense in return for keeping what little they have in savings. This mortgage is more expensive to that individual, even if the amount borrowed is less than some mortgages.
Contrast that with the borrowing requirements for jumbo loans. A few lenders allow 10%, but most require 20%. Almost all require at least a 700 credit score. Many will require reserves. My mortgage lender requires a 700 score, minimum 20% down, a max DTI (including the mortgage) of 43%, and at least 1 year's worth of ALL monthly obligations in liquid cash reserves after down payment. Those types of requirements go much further to reduce the risk of foreclosure because approved borrowers had to show extensive ability to maintain payment, even in adverse times. Contrast that with a FHA or similar loan where a borrower may pay little/no down, require a lower credit score, and little or no reserves.
You can borrow $200,000 for a home with less than $5,000 in the bank, whereas if jumbo requirements were applied that same person would have required in the neighborhood of $60,000 in the bank to qualify. Given that disparity, I have to logically conclude that the lion's share of foreclosures are happening on the lower-cost/lower-bar-to-qualify mortgages.
I used to think 20% or bust and stress over how I'm going to maintain comfortable cash reserves while buying a house that I'd be happy with. Then I got a quote for PMI from a lender. They said it was $50 a month until you hit 22% equity. Wasn't worth the mental stress of not having liquid cash on hand. My primary and sole concern is my ability to service the debt (DTI) and any associated expenses that come with owning the house (and yes, PMI is one of them if applicable). LTV means nothing to me.
There's also the fact that in some markets, housing prices go up faster than you can save a down payment.
1) They don't have the money to put down 20% on the house they WANT.
2) They don't want to wait, or downsize their expectations.
3) Artificially low interest rates make it a plausible argument to pay PMI and hope to earn more in the stock market than the PMI costs.
4) Mortgages having become saleable speculative investments themselves, the lenders don't really care about whether the borrower can pay it to term, they just care whether they can put together a big bundle of mortgages they can sell at a profit to the next outfit. Thus the explosion in "creative financing" schemes.
I wish I didn't have to, but I live in Montgomery County, Maryland. I'm looking for a nice single family home built within the last 20 years (the newer the better) located in a good school district. That is pretty much $700k-$800k around here. Maybe even more.
I can try to move farther out for lower prices, but it's going to cause issues with commute times to work. I may end up having to do that anyway.
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