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A buyer should put as little as possible down when buying a home. What is the benefit of tying up a ton of money in a house? A person should put enough down to make their payments affordable based on their income and that's it. If it's $0, then so be it. There is absolutely no reason for a buyer to "have skin in the game".
If you can afford the payment, and have enough stashed away to make the mortgage payments and repair your house, then you're good.
My last real estate purchase I put 0$ down. I used a VA loan. I had enough to put 20-40% down but didn't see the benefit in putting that much cash into an asset that has no liquidity. Cash flows make or break a household or business. I do have enough stashed away to pay my mortgage for two years if I lose my job.
The only place I've ever heard of sellers shying away from $0 loans is on this forum. I bought a house with zero problems and so have many of my friends.
If you can afford the higher payment due to little or no money down go for it. If house prices drop and you go underwater on equity and ding your credit if you gotta get out from under the house is when it becomes a issue but as long as you don't mind making nothing back if you move or don't care about house value/equity a 0 down can work for some. YOU are financially secure and can absorb the PMI and probably don't mind making a payment you feel comfortable with that some may see as exorbitant.
Some buyers putting that little down scrape by to put that down. To some coming up with 5% down is exorbitant. Those people are better off renting.
Lots of homebuyers are simply going by the rent is this much owning isn't much more. I'll go buy a house. You obviously know there is more to homeownership besides making the payment. Lots of people can barely make rent on time much less do maintenance and pay all other things they owe or want.
You think banks don't look at the 0/3.5% down borrowers closely? IMO those are the riskiest to lend to. Exactly because they have no skin in the game.
You know as well as a lot of people home ownership is a lot more than making that monthly payment
After learning more and more about real estate this past year and evaluating my own financial situation I found myself pretty surprised. I discovered in August that I was pre-approved to buy a home even though I was the only one working full time and had only been in my job since may...I know several young couples who bought homes using a usda loan with zero money down. I am the daughter of an economist who has repeatedly said no, no, no wait! I had thought that perhaps he still sees me as his little girl and is concerned or is expressing an outdated opinion but honestly I agree that putting down 10-20% is safest...it is pretty shocking how much of a loan we could get right now and what we could get in a few months.... Over $100,000 more than we feel comfortable. I am very happy with my decision. I probably could have made it work since our income will double soon but it is just really too risky. Thanks for the input and debate! Next up... Starting a Roth IRA dun dun dun
It's always exciting to think about buying a home. Dont get sucked in by that "starting my future" feeling we all get when looking for a new or first home. take your time, dont buy unless you can atleast put 5% to 20% down and have payments the same as your current rent or possibly higher if you can afford it. It may be too early to uy a house and you know it, but that new house smell gets the best of you.
A buyer should put as little as possible down when buying a home. What is the benefit of tying up a ton of money in a house? A person should put enough down to make their payments affordable based on their income and that's it. If it's $0, then so be it. There is absolutely no reason for a buyer to "have skin in the game".
If you can afford the payment, and have enough stashed away to make the mortgage payments and repair your house, then you're good.
My last real estate purchase I put 0$ down. I used a VA loan. I had enough to put 20-40% down but didn't see the benefit in putting that much cash into an asset that has no liquidity. Cash flows make or break a household or business. I do have enough stashed away to pay my mortgage for two years if I lose my job.
The only place I've ever heard of sellers shying away from $0 loans is on this forum. I bought a house with zero problems and so have many of my friends.
This x1000. You should figure out what payment you can afford and put down as little money as possible to afford that house. You should also have money in reserve to make 2 years of payments. If you do this there is no reason to put all that money down.
In some markets, like DC or SF the median home price is around 500,000. It is simply unrealistic to expect every homebuyer to be able to save that much cash. And if they do, it's likely not smart to dump it into the house.
I have never put down close to 20 percent on a home. Some people can qualify for this without paying PMI. Even if you do have to pay it, it becomes just becomes part of the calculus.
People who are absolute that you need a big down payment don't understand these basic economic principles.
Opportunity cost- if that money can do better for you than the interest rate you can get by investing it elsewhere, then it's silly to tie it up in your house if you don't have to.
Liquidity- your house is a non liquid asset. Tying up a large portion of your cash in such an asset is not smart. If things really go south. You would want the cash that went to the down payment in your bank account and not inaccessible in your home. You can't use your house to buy groceries.
Again, if you can't afford the payment and don't have reserve, don't buy a house. The bank is the only one that wants you to have 'skin in the game'.
No scrupulous financial advisor would ever look at a situation where there was NO down payment and say "oh yes-- go forth and buy!"
I am not going to get on my soapbox, but I just can't understand why anyone would buy a house with no money down. Its just setting you up for a foreclosure.
Think about it-- you buy a place for $150K, no money down. You owe the bank $150K. You have to put down a couple thousand for closing expenses (lets say your total our of pocket is $155K, conservatively). We will say for the sake or argument that is all of your savings.
Let's say your house has some sort of issue in three years that will cost 10K to repair. You don't have enough saved to do the repair-- you have two little ones by this time-- so you decide to sell. You owe approx $142,504 at a 4.625% interest rate. You would like to sell your place for $160K but your agent thinks that due to the softness of the market and the needed repairs, you will do better to list around $145K. You list the house.
You get an offer at $143K which you accept. All is good, right? Wrong. You pay $8520 (%6) to realtors. Your total proceeds from the sale is now is $134,480. This means that you still owe the bank about 8k, not to mention the 5K you initially lost in closing on the place the first time.
This scenario can happen so easily.
Now let's say, same thing, but you put down 20k. You are now financing a loan of $130K. After 3 years, you owe $123,503. You sell the house as above with and are making $134,480 from the sale. Instead of losing 8k, you are gaining $10,977. In this scenario, you still lost most of the down payment, but you are able to pay off the bank.
This is complete fallacy. These transactions don't happen in a vacuum. Just because you got a check for 11k at closing doesn't mean you are "gaining" 11k. It just offsets the money you paid upfront.
Let's use your scenario. Suppose you get the zero down loan. You take that $20K and invest it a 5%. After 3 years I have 23,200 in the bank. When the 10k repair bill comes, you pay it. Then you can list the house for $160,000. If you sell it for $155,000 making your proceeds $145,700. The bank cuts you a check for $3200. You deposit it your account and of your original $20k you have $16,400.
Or you choose not to make the repair because you are going to sell anyway. You still owe the bank 8K at closing. You pay it and still have $15,200 in the bank.
If I had put that money in down payment like you suggested I will have $11K in the bank when all is said and done.
Which of these is the more financially savvy option? Having the cash gives you options because it is infinitely more liquid than your house. Want to do the repairs? You can afford it. Don't want to do the repairs? You can afford to pay off the bank. Want to stay in the house even though someone lost a job? You have months of payments in reserve.
And people will say PMI. If you've got really good credit and the right job, there are many ways to avoid PMI. But if you do have to pay it, it is equal to the other scenarios and gives you a ton more liquidity.
The advice to put down 20 percent assumes that you cannot be disciplined or smart with your money. If you are, it makes zero sense to do so.
Depending on how smart you are with your money, it might make more sense to have a cash purchase or completely finance the house (these are two completely opposite ends of the spectrum to illustrate). Some have enough to buy outright, some do not. If you have enough plus six months of living expenses, it would make sense to put down cash than to accrue the interest on the entire principal unless the cash in your savings is generating a greater return than the interest. It's hard to predict with equities, but with any sort of bank rate today you will never reach that required return.
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