I could put down 10% and still have a decent amount in my savings. However, if I were to put down 20% it would take me a couple more years.

I know that interest rates are low right now.

Other than paying a PMI - is there any downside to only putting down 10%?

Martin Q. Blank said:

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It will make less in a savings account than mortgage interest savings.

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But possible not if you factor in PMI

TwoMarksHand said:

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Martin Q. Blank said:

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It will make less in a savings account than mortgage interest savings.

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But possible not if you factor in PMI

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eh?

AggieFrog said:

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I'd look into an 80-10-10 and then paying off the 2nd as quickly as possible.

That's what we did with our first home to avoid PMI and had the 2nd paid off relatively quickly. And note that once you finish paying off the 2nd, just keep paying that extra towards your 30 year mortgage to pay it off early.

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I'm not familiar with the 80-10-10 loan.

mrmill3218 said:

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AggieFrog said:

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I'd look into an 80-10-10 and then paying off the 2nd as quickly as possible.

That's what we did with our first home to avoid PMI and had the 2nd paid off relatively quickly. And note that once you finish paying off the 2nd, just keep paying that extra towards your 30 year mortgage to pay it off early.

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I'm not familiar with the 80-10-10 loan.

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10% Down
80% 1st Mortgage
10% 2nd Mortgage

diehard03 said:

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I could put down 10% and still have a decent amount in my savings. However, if I were to put down 20% it would take me a couple more years.

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I think the most important question is why you are buying a house. If it's just the next thing to do in life, then i'd probably wait. If it's a get your family setup in a neighborhood and it's the right time to do that, then I'd probably go for it.

PMI vs creating loan structuring wont really affect the big picture all that much.

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My wife and I would like to start a family and we currently live in a one bedroom apartment.

what city?

Dallas

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My wife and I would like to start a family and we currently live in a one bedroom apartment.

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I don't think you have a choice man. You're buying a house. You will regret not spending the money later to start 2 years earlier.

Another advantage to putting 20% down is that you don't have to escrow (meaning, you pay your insurance and property taxes yourself rather than paying the mortgage company every month to do it for you).

Some people don't care either way, and some people prefer to escrow. I don't like to escrow, so that's an important factor for me.

Putting 20% down also gives you a little more wiggle room if you have to unexpectedly sell in a down market. If you only put 10% down and the value of your home decreases, you might have to bring cash to closing if you find yourself in a situation where you have to sell before your home has had a chance to appreciate and/or you've paid down a significant portion of the mortgage. Putting down 20% gives you more of a buffer, but this is also affected by whether or not you get a 15 year or a 30 year mortgage (with a 15 year, you will pay down a lot more of the principal with each passing year).

You can actually waive escrow up to 95% on a conventional loan. Most lenders have an overlay that require 20% to waive but not required. VA/FHA loan escrow is required.

AggieFrog said:

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That's why you get a 30 year loan and pay it like a 15. Then if you get into a cash crunch you can just pay the 30 year payment.

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Fair point, but sometimes it's hard for people to get motivated to do that. And every time I've gotten a 30 year, within a year or two, I've kicked myself for not getting the 15 in the first place.

TXTransplant said:

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AggieFrog said:

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That's why you get a 30 year loan and pay it like a 15. Then if you get into a cash crunch you can just pay the 30 year payment.

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Fair point, but sometimes it's hard for people to get motivated to do that. And every time I've gotten a 30 year, within a year or two, I've kicked myself for not getting the 15 in the first place.

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Due to the better rate on the 15 vs 30 or what?

We did 30year but paying extra every month, will definitely have it payed off well before 15 years (if we stay in the house that long).

Aggie09Derek said:

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TXTransplant said:

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AggieFrog said:

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That's why you get a 30 year loan and pay it like a 15. Then if you get into a cash crunch you can just pay the 30 year payment.

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Fair point, but sometimes it's hard for people to get motivated to do that. And every time I've gotten a 30 year, within a year or two, I've kicked myself for not getting the 15 in the first place.

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Due to the better rate on the 15 vs 30 or what?

We did 30year but paying extra every month, will definitely have it payed off well before 15 years (if we stay in the house that long).

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Hard for people to pay the 15 year rate when they only owe the 30. It's easy to have something "come up" every month - which is why I'm really glad I just refied to the 15 year when interest rates bottomed out few years ago. Got the better rate AND don't have to decide every month if I can afford to pay "extra".

Fair point. But we live far below our means. Our mortgage is 1/2 what we pay monthly for 3 kids in private school.

Similarly I always use credit cards for most everything but we also pay them off weekly (in 20+ years I've never carried a balance from one month to the next). But it takes discipline to make those things work or they'll bite you.

Fair enough. We just pay the same x amount over what is due every month.

AggieFrog said:

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Fair point. But we live far below our means. Our mortgage is 1/2 what we pay monthly for 3 kids in private school.

Similarly I always use credit cards for most everything but we also pay them off weekly (in 20+ years I've never carried a balance from one month to the next). But it takes discipline to make those things work or they'll bite you.

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I'm like you...live well below my means. So much so, I was almost scared to get a 15 year until I refied my current house. Once I did it, I felt silly for being so conservative. Of course, I made a lot less money and had less job stability when I took out those 30 year mortgages, so at the time, it seemed like the right decision. I was also paying extra each month when I refied my current house, but interest rates dropped so low that refinancing saved me even more than just paying early.

I've also never carried a cc balance from one month to the next. I've just come to learn people with habits like ours are the exception rather than the rule. Thankfully, my extra income at the end of every month is just that - extra. The goal is to put away much of it as possible, but somehow those plans seem to get thwarted more often than I'd like.

I definitely get something always coming up. I try to automate as much as possible, including auto drafts every week/month to accounts outside checking / savings in our day to day bank. That way I don't have to think about saving extra - it just happens.

Another thought for the OP - my first mortgage (almost 15 years ago...yikes!) was a 7 year arm.

Like you, at the time I was mostly concerned about the down payment. I had 20% to put down, but the arm only required 10%. It was through a credit union affiliated with my employer.

I opted for that, figuring I would refi in a few years (interest rates were in the 4s). After about 5 years or so, I got nervous about interest rates and refinanced to a fixed rate loan at about the same interest rate I was paying on the arm. At year 6, I took a new job and sold the house - so the refinance was kind of pointless (but I had no way of predicting that).

I did not escrow and the loan did not require PMI.

Had I just kept the arm, the interest rate would have actually decreased, because by the 7 year mark, interest rates had dropped below what they were when I purchased.

If you can find a good ARM product, it might be the best if both worlds for you

People looking to start a family are probably buying a house that they'll be in for 5 years maybe 7 or 8. Paying the premium for 30 years fixed over a 7/1 or 10/1 ARM likely costs them money unnecessarily.

jja79 said:

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People looking to start a family are probably buying a house that they'll be in for 5 years maybe 7 or 8. Paying the premium for 30 years fixed over a 7/1 or 10/1 ARM likely costs them money unnecessarily.

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I'm certainly no expert on ARMs, and before I had one, I thought they were all bad. I lucked up and stumbled onto one that was basically the same as a fixed, since I sold the home before the ARM expired (the builder I purchased from payed all my closing costs).

I was just throwing it out there as another option to look into, especially if they don't think this will be their "forever" home. And if interest rates drop again, they would probably look to refinance anyway, whether they get an ARM or a fixed rate.

If you're currently in an apartment and trying to start a family, why not FHA loan?

I'm in a somewhat similar position and hoping to purchase soon, but the 20% down feels a bit out of reach.