Down payment on first home question... - Chicagoland Sportbikes
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post #1 of 22 (permalink) Old 02-02-2008, 01:16 PM Thread Starter
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Down payment on first home question...

Whats the best percentage to put down for a home? I'm a first time buyer out of college and I will have a sizable amount of cash for a down payment. With the market the way it is for homes, should I put down everything I have or something like 25% and invest whats left into a more profitable option? I could probably pay 50-55% of the home if I put it all down. Other options? Advice? Tax consequences that I'm not thinking of?

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post #2 of 22 (permalink) Old 02-02-2008, 01:25 PM
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at least 20% so you don't have to deal with PMI crap.

always have enough cash on hand so that if a rainy day (or a rainy 6 months or whatever) comes your way, you still have cash to fall back on and continue to make payments.

I've seen a lot instances where people don't have that rainy day money to fall back on when they suddenly come face to face with unemployment and they lose their house, motorcycle and other toys....
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post #3 of 22 (permalink) Old 02-02-2008, 01:36 PM
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Quote:
Originally Posted by Ernie View Post
at least 20% so you don't have to deal with PMI crap.
20% will save you on PMI, but you don't have to come up with the 20% on your own. I've seen people take out two loans. One for 80% and the other for the 20%. Cash is king. Although values of homes are not so good right now, over time the value will go up.

If your credit is outstanding, try for an 80/20 loan to avoid PMI. Keep your cash and use it for rainy days and what not. If you cannot get two loans, then the next phase is to try to put 20% down of your own cash. Remember, that is instant equity in your home. Unless the value of your home goes down tomorrow, that 20% is still yours, it's just yours in the form of equity on your house.

Worse case is you pay the PMI, which sucks. I would not buy a home if I had to pay PMI - I'd wait until I could afford to put down enough or be able to get a 2nd loan to cover the 20%.

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post #4 of 22 (permalink) Old 02-02-2008, 01:50 PM
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I did an 80/20

now my house value went up and with rates low so refiing into an 90% loan with no PMI


keep 2-3k cash no matter what for emergencies.
Heating and AC breaking can be costly.

plus I know some chick who had her pipes freeze and explode.



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post #5 of 22 (permalink) Old 02-02-2008, 01:55 PM
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It depends on what you'ld do with the money you could put down & how good of rates you'll qualify for. With rates as low as they are right now, I'd put as little down as you can and still get great terms. Then, park the money & put it to work. This will benefit you a few ways:

1) If you invest it wisely, you'll see 10% to 12% returns long term (or more) while paying much less on funds borrowed. The difference between the two is profit for you.
2) Larger loan balance = larger tax write off. I avoid paying uncle sam any more than I have to.
3) Like Ernie mentioned, you would also be in a nice strong liquid position if anything bad were to happen.

If you won't see low rates due to credit or other issues, this equation makes less sense...

Last edited by Troy; 02-02-2008 at 02:03 PM.
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post #6 of 22 (permalink) Old 02-02-2008, 02:08 PM
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If you put 20% cash down on your residence, you should be able to not have the lender force you to pay escrow for taxes/insurance. I would put the 20% down so you have home equity which could be tapped for emergencies; no PMI insurance requirement and no escrow.

The 80% of mortgage should still give you decent costs that could reduce your federal taxes.

One other advice for 1st time buyers, if all other items are equal, it is best to purchase a house early in the year. You woudl want to maximize your costs in the calendar year so you could get back maximum tax refund. If you close on a house in November, your closing and couple months of interest would not be above your standard deduction. But if you close in Jan/Feb, you will end up with a decent tax refund.

Also for all parents - have your children in Oct/Nov. Why? two reasons.
1. You get the same tax deduction as those who had their kids way back in Jan/Feb of that year
2. Sep/Oct/Nov children are the oldest children in their classes. They will be taller, more mature than other kids born in the following Feb, Mar, June, etc. Your kids will be the first to drink, first to drive among all thier friends. I missed with my oldest (Feb), but hit the bullseye with my youngest (Nov).
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post #7 of 22 (permalink) Old 02-02-2008, 02:11 PM
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you can have a one time payment that will cover PMI also. not nearly as common but it can save you paying it every month.

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post #8 of 22 (permalink) Old 02-02-2008, 02:12 PM Thread Starter
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Quote:
Originally Posted by Troy View Post
It depends on what you'ld do with the money you could put down & how good of rates you'll qualify for. With rates as low as they are right now, I'd put as little down as you can and still get great terms. Then, park the money & put it to work. This will benefit you a few ways:

1) If you invest it wisely, you'll see 10% to 12% returns long term (or more) while paying much less on funds borrowed. The difference between the two is profit for you.
2) Larger loan balance = larger tax write off. I avoid paying uncle sam any more than I have to.
3) Like Ernie mentioned, you would also be in a nice strong liquid position if anything bad were to happen.

If you won't see low rates due to credit or other issues, this equation makes less sense...
I didn't even think about the mortgage amount being tax deductible.. I've got as good of credit as a college kid can, no debt. I had a rating of 7xx something last year when I checked...

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post #9 of 22 (permalink) Old 02-02-2008, 02:27 PM
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It is actually the mortgage interest on payments made that is deductable but a larger balance = larger payments & more deductable interest each year.

One other ingredient to factor in is payment vs. budget. In doing the above I would never recommend taking a payment so big it stresses your budget.
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post #10 of 22 (permalink) Old 02-02-2008, 02:35 PM Thread Starter
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Quote:
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It is actually the mortgage interest on payments made that is deductable but a larger balance = larger payments & more deductable interest each year.

One other ingredient to factor in is payment vs. budget. In doing the above I would never recommend taking a payment so big it stresses your budget.
What percentage should your mortgage take up of your monthly income, ideally?

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post #11 of 22 (permalink) Old 02-02-2008, 03:24 PM
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Quote:
Originally Posted by kcaarider View Post
What percentage should your mortgage take up of your monthly income, ideally?
In the old days it was 25%-33%...that number has gone up. I'd try to stay around 35% if possible, although I am admittedly a little higher than that, but you'll drastically adjust your spending style after you make a home purchase so as long as you keep it reasonable you'll be fine. (That's with tax/association, etc...not just the mortgage itself)

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post #12 of 22 (permalink) Old 02-02-2008, 03:28 PM
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That's a hard question to answer for someone else. It depends very much on your financial situation and your needs in a home.

Ideally I'd say less than 15% but that's highly unrealistic for most professions given the cost of living in this area. 25% to 35% is far more common and a pretty reasonable range. Higher than 40 or 45% and the budget starts getting pretty tight.

These are based on pre-tax household income.
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post #13 of 22 (permalink) Old 02-02-2008, 05:13 PM
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I did an 80/20 with a 3 year arm. Paid the 20% off already so now I will be moving in the spring/summer of 08 and selling my first home. Will put 10-20% down on my new place.

80/20's with an arm have gotten plenty of people in trouble though so be careful.

Consider putting 20% down if you can, but also you shouldn't be buying that house unless you have six months of expenses in the bank, so basically if one day you became unemployed you could live for six months straight and not change anything in your life. That bumper will make you much safer in case there is a situation where you lose your job or take a pay cut.
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post #14 of 22 (permalink) Old 02-02-2008, 05:33 PM
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Put 20% down and the loan will fly through underwriting.

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post #15 of 22 (permalink) Old 02-02-2008, 05:54 PM
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Avoid PMI..... that's money down the drain.


As for the rest, do the math.


Loan rate -vs- rate of return if you invest the rest.

With rates really low, you can take a 30 year fixed.... invest
the rest and make far more than the interest you pay on it.


With rates at an all-time low.... only a fool would take an ARM.


BTW.... the interest on the loan is (of course) tax deductible.



Tom


OTOH.... if you will squander the rest like a drunken sailor, put it
on the house where it's "safe". If you were that guy.... you wouldn't
have it to be talking about it anyhow......




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post #16 of 22 (permalink) Old 02-02-2008, 10:05 PM
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Put at least 20% down so you don"t have to pay the pmi. After that I would put down as much as needed to make the mortgage reasonable. I would also get a 15 yr loan and not a 30. You will pay more to principal and less to the lender. If you get a 30 year loan with $1000 per month payment only about $50 goes to your principal. The rest is interest.

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post #17 of 22 (permalink) Old 02-03-2008, 12:14 AM
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PMI sucks. . . but seriously when I first got out of college I didn't know what was happening tomorrow, point is how long are you really going to stay there. Question is could the 20% go to better use investing elsewhere? Stock market is low, sure it will go lower but it will surely go up from here. . . . just some stuff to think about. I am far from wealthy but just some thoughts that I would think through before I put 20% down in a house.
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post #18 of 22 (permalink) Old 02-03-2008, 12:17 AM Thread Starter
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Quote:
Originally Posted by elkhartr1 View Post
PMI sucks. . . but seriously when I first got out of college I didn't know what was happening tomorrow, point is how long are you really going to stay there. Question is could the 20% go to better use investing elsewhere? Stock market is low, sure it will go lower but it will surely go up from here. . . . just some stuff to think about. I am far from wealthy but just some thoughts that I would think through before I put 20% down in a house.

I love it when I see your posting in this thread AND the "official drunk" thread at the same time.

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post #19 of 22 (permalink) Old 02-03-2008, 12:22 AM
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I know. . . . it rocks!!!! I am just saying to look at what PMI costs you and see if you could do better than that on you money in investments. I would try and do the math but I might vomit!!!!! Jack Daniels is a bitch.
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post #20 of 22 (permalink) Old 02-03-2008, 09:30 AM
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I would try to avoid MI as well. MI premiums are on the rise for some loan programs. As an up side, they MI payments are tax deductable now. They were'nt before '07. Many lenders will eliminate the MI requirements without requiring you to refinance either, so the MI payment is temporary.

One consequence of the messed up mortgage market is that 2nd mortgages aren't as widely available as they used to be. Many lenders simply stopped offering them while others tightened qualifying criteria.

If you're borrowing more than 80%, run the numbers. Take a look at tems, payment, & closing costs of 1 loan vs 2 before making your decision.
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post #21 of 22 (permalink) Old 02-04-2008, 12:31 PM
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depending on how long you plan on living there should also determine whether you take a 15 or 30 yr fixed loan out on the house. it's pointless to have a higher mortgage payment per month if you plan on selling it off in 5 years. that extra money could be going into a Roth IRA or another type of retirement/savings acct.

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post #22 of 22 (permalink) Old 02-04-2008, 04:57 PM
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Keep as much in your pocket, you'll probly end up
moving , Use what you have on another house buy
cheap and flip,keep your residence location , for
the two years and flip again. I gut and restore houses so let
me know if you need a hand .
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