Author Topic: How much to really put down?  (Read 2125 times)

AndrewPiano

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How much to really put down?
« on: February 25, 2019, 04:00:18 PM »
How much should I put down for a loan?
I'm 32, never bought a home before. I know that the norm is to put 20%, but there are loans that require less. I'm just not sure yet what I want to do.

Savings: $17k
Debt: Car ~$17k
I pay off credit cards in full each month. I only have two of them.
Current rent: $1200 (it's too high and I'm looking for something cheaper soon)
IRA: $3500
Investments: $20k

I've started living frugally since January. I used to just spend spend spend, but I want my savings to grow. I think by purchasing a home with much less of a note than my current rent that I could save a lot more money.

Watchmaker

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Re: How much to really put down?
« Reply #1 on: February 25, 2019, 04:17:00 PM »
I'd need to know a lot more about your situation, but if you are single and there is a decent chance you'll move cities, enter into a long term relationship, have kids, won't want roommates, etc in the next decade, I'd say a house may not be a good idea right now.

Finding a cheaper apartment could be a good choice though.

Boofinator

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Re: How much to really put down?
« Reply #2 on: February 25, 2019, 04:39:29 PM »
I'll second previous poster's sentiment. A house isn't a good investment, contrary to what the real estate establishment might want you to believe. Focus instead on reducing expenses (within reason) and investing for the big bucks using tax-deferred options available and equities. A house only starts to beat rent if you are going to own it for at least 5-10 years (as a rule of thumb).

AndrewPiano

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Re: How much to really put down?
« Reply #3 on: February 25, 2019, 07:27:57 PM »
Alright, thanks for the tips. I'd still like to own something to call my own. I guess it's pride. But yes I am single, no kids, etc, and I'd like to be in a major city one day. I'd still like to know what a good down payment might be however. I'd really prefer renting a house over renting an apartment. Less noise.

As to the car, I recently got it about 6 months ago. I managed to get the auto loan. My goal with that was to actually increase my credit score, which I have managed to do in the last 6 months. (600's to 700's) I will keep making payments on it and perhaps pay off some of it in the near future. Maybe 1k or 2k increments. I really don't want to have too much debt.

Watchmaker

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Re: How much to really put down?
« Reply #4 on: February 25, 2019, 08:15:11 PM »
Alright, thanks for the tips. I'd still like to own something to call my own. I guess it's pride.

I hear ya. But there's other things you can be proud of too. Instead saving for a house, invest it for the future--buy yourself options or freedom down the road. Do you contribute to a 401k or IRA? Depending on how much you pay in taxes there could be some good tax savings there for you, or if you are in a low tax bracket right now a roth IRA would be perfect, and you'd be able to withdraw your roth IRA contributions for a house down payment down the road, so, again, you'd have options.

There's no hard rule for how much down payment makes sense, but it's generally best to avoid PMI (mortgage insurance), which typically requires 20% down (though certain loan programs may be different).

seemsright

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Re: How much to really put down?
« Reply #5 on: February 25, 2019, 09:21:48 PM »
owing a house is stupid expensive. There will always be something that has to be fixed in some way. You will be at the home improvement store often. A light bulb, a screw, this and that.

My advice is to not buy a home if you do not have a 'oh shit' fund.

It is grand times when the kitchen rains, the furnace goes out in Feb and the next day you find out you have to replace your roof.  I can go on and on about how much a house costs. I am really over it.

I much rather have the landloard deal with the toilet...which I still have not figured out why the damn thing still runs after replacing all of the parts...off to the home improvement store...again. 

MrThatsDifferent

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Re: How much to really put down?
« Reply #6 on: February 25, 2019, 11:22:50 PM »
There’s an entire section dedicated to real estate

Fishindude

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Re: How much to really put down?
« Reply #7 on: February 26, 2019, 07:49:34 AM »
How much should I put down for a loan?
I'm 32, never bought a home before. I know that the norm is to put 20%, but there are loans that require less. I'm just not sure yet what I want to do.

I would not buy a house unless you have at least 20% to put down.
You can find all kinds of crazy loans, maybe even a few that require almost no down payment, but if you are really serious about "owning" a home, putting more money down up front and keeping the mortgage term short, equals less money you will be borrowing and paying interest on, which will allow you to be free and clear of the bank sooner.

Don't know where you live, but in some cases (my son did it), you can buy a starter home and make payments much cheaper than you can rent anything decent.  The savings can be used for home renovations or paying down the mortgage quicker.

AndrewPiano

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Re: How much to really put down?
« Reply #8 on: February 26, 2019, 09:14:10 AM »
I live in the southern US. A small starter home would be nice, not expensive.

The thing is, if I get a house, I'll be able to start a small home business, so my income will go up, and could even go up by a lot if it takes off. This would be in addition to my current employment.

Boofinator

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Re: How much to really put down?
« Reply #9 on: February 26, 2019, 09:17:35 AM »
Alright, thanks for the tips. I'd still like to own something to call my own. I guess it's pride.

Buy stocks. Equities. Ownership shares in companies. And do so with the extra money Uncle Sam gives you through tax-deferred investments.

I can tell you, after owning several houses through the years, that I am much prouder of the giant stash I have than the places I live or have lived. And this comes from someone who enjoys doing projects both inside and outside my houses.

Boofinator

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Re: How much to really put down?
« Reply #10 on: February 26, 2019, 09:20:27 AM »
The thing is, if I get a house, I'll be able to start a small home business, so my income will go up, and could even go up by a lot if it takes off. This would be in addition to my current employment.

If this is truly the case*, it might make good investment sense to buy a home. However, why must you specifically own a home to start your business?

*Perhaps you might even be able to deduct some of the home expense from taxes as a business expense.

AndrewPiano

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Re: How much to really put down?
« Reply #11 on: February 26, 2019, 11:18:35 AM »
The thing is, if I get a house, I'll be able to start a small home business, so my income will go up, and could even go up by a lot if it takes off. This would be in addition to my current employment.

If this is truly the case*, it might make good investment sense to buy a home. However, why must you specifically own a home to start your business?

*Perhaps you might even be able to deduct some of the home expense from taxes as a business expense.

It's just the nature of the business. An apartment just doesn't work in this case, but I'd rather not go into details. And yes I would definitely be able to deduct some of the home expenses by doing so.

Saving in Austin

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Re: How much to really put down?
« Reply #12 on: February 26, 2019, 03:19:40 PM »
I didn't buy a home until I had enough to put 25% down with a year's worth of expenses in the bank.

I bought at the end of 2010 and the real estate crash was too recent for me to take a short cut.

Dicey

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Re: How much to really put down?
« Reply #13 on: February 26, 2019, 05:44:01 PM »
There’s an entire section dedicated to real estate
I agree with MTD. Please ask a mod to move this thread. You'll get a lot more attention over there. I also agree that a lot more info is needed. A case study might also be quite helpful.

The thing about less than 20% down is that it triggers PMI, which everybody then wastes a bunch of energy hating on. Save up a pile of money for a DP and more for a contingency fund and THEN buy a house if you still wish.  With badass mustachian skillz, it won't take that long. Your future self will thank you for doing it this way.

AndrewPiano

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Re: How much to really put down?
« Reply #14 on: February 26, 2019, 09:08:20 PM »
Cool, it sounds like you've made up your mind.  If I were you, I would put down as little as I could for the downpayment (5%) on a 30 year fixed mortgage.  This will likely mean you pay PMI, but that's okay.  Once you get a little bigger cash buffer, then consider prepaying to get to 20% to eliminate the PMI. 

How much is the house you have in mind?  100K?  More or less?

Yes I'm thinking around 100K. At least two bedrooms, so I could rent out a bedroom if needed.

AndrewPiano

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Re: How much to really put down?
« Reply #15 on: February 26, 2019, 09:09:35 PM »
There’s an entire section dedicated to real estate
I agree with MTD. Please ask a mod to move this thread. You'll get a lot more attention over there. I also agree that a lot more info is needed. A case study might also be quite helpful.

The thing about less than 20% down is that it triggers PMI, which everybody then wastes a bunch of energy hating on. Save up a pile of money for a DP and more for a contingency fund and THEN buy a house if you still wish.  With badass mustachian skillz, it won't take that long. Your future self will thank you for doing it this way.

I know that people don't like PMI, but it's not something I'm totally against paying extra for. I just feel like I might be more successful owning a home than renting it.

Dicey

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Re: How much to really put down?
« Reply #16 on: February 26, 2019, 09:27:23 PM »
There’s an entire section dedicated to real estate
I agree with MTD. Please ask a mod to move this thread. You'll get a lot more attention over there. I also agree that a lot more info is needed. A case study might also be quite helpful.

The thing about less than 20% down is that it triggers PMI, which everybody then wastes a bunch of energy hating on. Save up a pile of money for a DP and more for a contingency fund and THEN buy a house if you still wish.  With badass mustachian skillz, it won't take that long. Your future self will thank you for doing it this way.

I know that people don't like PMI, but it's not something I'm totally against paying extra for. I just feel like I might be more successful owning a home than renting it.
I don't mind PMI, it's the price of admission for buying a house with less than 20% down. I knew that when I bought my first house and I still came to hate it. PMI comes up here all the damn time. Trust me, odds are you're not going to love having it either.

Always buy a house with resale in mind, even if you think you'll be there forever. 3+2 is kind of the sweet spot. If your housing prices are that low, it should be affordable, as long as it's not a huge footprint. With prices that low, I can see why you wouldn't want to be a renter. Unless your regional economic factors change for the better though, I wouldn't expect a lot of appreciation. Just things to think about from someone who's been there, done that.

HipGnosis

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Re: How much to really put down?
« Reply #17 on: February 27, 2019, 09:23:39 AM »
Yes I'm thinking around 100K. At least two bedrooms, so I could rent out a bedroom if needed.

... if I get a house, I'll be able to start a small home business, so my income will go up, and could even go up by a lot if it takes off. This would be in addition to my current employment.
I'd need two bathrooms to have a renter roommate.
Renting out a room is never going to 'take off'.

AndrewPiano

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Re: How much to really put down?
« Reply #18 on: February 27, 2019, 10:13:47 AM »
Yes I'm thinking around 100K. At least two bedrooms, so I could rent out a bedroom if needed.

... if I get a house, I'll be able to start a small home business, so my income will go up, and could even go up by a lot if it takes off. This would be in addition to my current employment.
I'd need two bathrooms to have a renter roommate.
Renting out a room is never going to 'take off'.

I never said it would.

SweatingInAZ

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Re: How much to really put down?
« Reply #19 on: February 27, 2019, 11:23:16 AM »
It sounds like you may be thinking about tutoring, or teaching music lessons (Piano username?). My wife teaches out of our home, and we found it helpful to have three bedrooms and two bathrooms. That way we have a guest bedroom, a music room, and a guest bathroom that can always be clean and presentable. Parents and siblings hang out in our living room and siphon off our guest wifi. Guest parking is usually a problem with apartments and townhouses, so I agree with your sentiment that a house is important. Shared walls would be terrible for music lessons, too!

Now, back to your actual question...
In order to justify to myself that I can truly afford a house: I wouldn't consider having less than a 20% downpayment, and I still waited until I had the cost of a new roof in savings on top of the downpayment.
Your target looks great! I believe that aiming for the cheapest house that will be sufficient for 5+ years is paramount to financial success.

Telecaster

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Re: How much to really put down?
« Reply #20 on: February 27, 2019, 11:44:04 AM »
Alright, thanks for the tips. I'd still like to own something to call my own. I guess it's pride. But yes I am single, no kids, etc, and I'd like to be in a major city one day. I'd still like to know what a good down payment might be however. I'd really prefer renting a house over renting an apartment. Less noise.

As to the car, I recently got it about 6 months ago. I managed to get the auto loan. My goal with that was to actually increase my credit score, which I have managed to do in the last 6 months. (600's to 700's) I will keep making payments on it and perhaps pay off some of it in the near future. Maybe 1k or 2k increments. I really don't want to have too much debt.

I get it.  I like living in my own house.   In other words, owning a home is a lifestyle choice.  Sometimes it might cost you more to have the lifestyle you want.   But not always.  Generally, the longer you own a home, the more sense to makes to buy. 

A lot of people find this rent vs buy calculator useful:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

I don't like the idea of a starter home.   It implies you will be moving in the future, which likely means you should be renting. 

One thing you definitely want to do is get your credit score up before getting a loan. 

Goldielocks

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Re: How much to really put down?
« Reply #21 on: February 27, 2019, 01:54:05 PM »
The thing is, if I get a house, I'll be able to start a small home business, so my income will go up, and could even go up by a lot if it takes off. This would be in addition to my current employment.

If this is truly the case*, it might make good investment sense to buy a home. However, why must you specifically own a home to start your business?

*Perhaps you might even be able to deduct some of the home expense from taxes as a business expense.
I am in Canada, but you can start a home business in a rental (subject to landlord, but office based home businesses without public access are never a problem).
The bonus is that you can deduct a lot more $$ if you rent your place and have a home-based business (located in a dedicated room), than if you own your place.
Why?  Because there are limits on how much of your housing costs you can deduct, depending on the home -use.  If it is rented, then the whole rent is used.  If you own, only the interest and then not even for some types of employment (commissions, versus professional services, versus work from home epxenses, etc).

I believe that the US tax rules are similar, but someone else needs to verify this.

My two cents -- get a long lease on a little house that you like, with landlord approvals, start your home based business.