Author Topic: Down Payment Amount  (Read 914 times)

Engineer93

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Down Payment Amount
« on: July 07, 2017, 07:24:27 AM »
I want to buy a house next year and I'm not sure how much I should use as a down payment.  I'm looking for a house between 275 and 350k.  I'd love to stay on the low side but it's hard since I want to stay closer to the city.  I have 70k in cash right now to use as a down payment and another 220k in a taxed account that I could also use.  Salary is 99k and I max out all my retirement accounts.  I want to get a 15 year mortgage so that it is paid off by the time I'm 40 (24 right now). My question is: How much should I use on a down payment?  Right now I'm thinking a mortgage of 200k and then use cash for the rest. 

bender

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Re: Down Payment Amount
« Reply #1 on: July 07, 2017, 08:45:35 AM »
As long as you are putting down at least 20% you're good. 

Sounds like you're considering liquidating some of your taxable stock account to put extra money down though?  Is the stock appreciated and will create a large tax bill for you, or is that money in cash?

TheOldestYoungMan

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Re: Down Payment Amount
« Reply #2 on: July 07, 2017, 09:09:24 AM »
I regret no debt as much as I regret mortgage debt.

If I was as close as you are to paying cash for a house I would wait and pay cash.

If you do decide to mortgage, I couldn't ever get the math to justify doing more than a 20% downpayment, as in, there was never an advantage from an interest rate standpoint and you can always pay more per payment if you want to, little advantage to limiting your options.

Within 3 months of buying all my houses I have had some massive catastrophe befall me which used up all of my remaining cash, which is either an argument for or against having extra cash on hand afterwards, depending on how you look at it.

I've heard it described as a 1 year involuntary vow of poverty.
Notice is turned in! 35 days until FIRE!  I am excited and at the same time terrified!

cliff

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Re: Down Payment Amount
« Reply #3 on: September 07, 2017, 03:04:48 AM »
I can't see a good reason to tie up more than 20% cash in downpayment.  Especially at your age since you have the benefit of time to build equity by buying a home with 20% down plus a second rental income/investment property.  Mortgage rates are so low these days and won't stay this low forever.  Mortgage debt for investment property is good debt in my opinion (and many others successful in real estate)  since you are using it to leverage building wealth with other people paying your mortgage etc.

On the other hand if you have the cash to do 20% down, I think less than that down is a waste of money because of the additional expenses (and often fees) you have for PMI which is you paying to insure the bank for their benefit if you don't pay your mortgage.

I also suggest you negotiate to have the closing costs of your purchase rolled into your mortgage.  It gives you some tax benefit and keeps that cash free to invest for a return higher than low mortgage interest rate.  This is something that your buyer's real estate agent representing you and your lender can work together on to get the proper wording in your offer as well as the formal purchase agreement.

Best,
Cliff

I want to buy a house next year and I'm not sure how much I should use as a down payment.  I'm looking for a house between 275 and 350k.  I'd love to stay on the low side but it's hard since I want to stay closer to the city.  I have 70k in cash right now to use as a down payment and another 220k in a taxed account that I could also use.  Salary is 99k and I max out all my retirement accounts.  I want to get a 15 year mortgage so that it is paid off by the time I'm 40 (24 right now). My question is: How much should I use on a down payment?  Right now I'm thinking a mortgage of 200k and then use cash for the rest.



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srad

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Re: Down Payment Amount
« Reply #4 on: September 07, 2017, 11:52:28 AM »
You want to put 20% down.  I think the 15 year mortgages is around 3% right now.  More than 20% is wasting money that can be used to generate more than a 3% return.  Shoot 3%, you compare that to inflation, they are paying you to borrow.

Also, for closing costs, i like to try and get the seller to pay for some of those.  In slower markets or a home that needs a lot of work i have been able to get some to all of them paid for by the seller.  Hot markets, forget it, they are going to be all yours to pay.


Dicey

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Re: Down Payment Amount
« Reply #5 on: September 11, 2017, 09:47:49 AM »
I regret no debt as much as I regret mortgage debt.

Mortgage debt is my very favorite kind of debt.♡♡♡♡ In fact, It's my only tolerable form of debt.♡♡♡♡ Love me some cheap mortgage money.♡♡♡♡ Got any?♡♡♡♡

If I was as close as you are to paying cash for a house I would wait and pay cash.

Put 20% down, get a cheap-ass 30 year mortgage, keep a 6 month EF, and invest the rest. Then wait. FIRE happens faster that way.

If you do decide to mortgage, I couldn't ever get the math to justify doing more than a 20% downpayment, as in, there was never an advantage from an interest rate standpoint and you can always pay more per payment if you want to, little advantage to limiting your options.

This is brilliant advice.

Within 3 months of buying all my houses I have had some massive catastrophe befall me which used up all of my remaining cash, which is either an argument for or against having extra cash on hand afterwards, depending on how you look at it.

Anything short of complete house destruction is not a catastrophe. Things get old, wear out and need to be replaced at a fairly predictable rate. Plan for them by keeping a healthy EF or Reserve Fund. Also, a good inspection prior to purchase helps avoid trouble.

I've heard it described as a 1 year involuntary vow of poverty.

Funny, I call it the path to FIRE. YMMV

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And hell yes, I am still moving confidently in the direction of my dreams...

Lmoot

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Re: Down Payment Amount
« Reply #6 on: September 15, 2017, 04:16:47 AM »
I advise against waiting and paying in full. The real estate markets are localized, in general home values are rising, with no sign of slowing down or going down, in the time frame you want to buy. Each year, or month you wait while raising cash, the values could rise fast enough to wipe out any interest savings from paying in cash. Also at your age I would never want to tie up that much cash. And I am pro paying mortgages off early....so that tells you something!