As little down as you can get away with. Money is relatively cheap right now, use it. It was cheaper 2 yrs ago, but still is quite low historically.

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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 get why people do it, but I don't really agree with the strategy. I'd plan to get a house you feel comfortable raising your family in completely, in case life throws you for a loop and you need to stay there.

My $0.02...20% at a minimum. The main reason for me is you won't have to escrow. I didn't put down 20% on my first place and had the bank come to me after the first year and ask for more money because they didn't calculate what I needed in my escrow correctly. After that, they kept a couple grand in there as a "buffer" which I thought was a crock. I can see $500 or so, but not $2k. Since, each house I've bought has had >20% down (did 30% on my current) for the simple fact that I don't want the bank keeping money from me that I can be earning something on.

You just have to be disciplined. My wife has a set amount direct deposited into a savings account (currently with AE) just for the purpose to cover taxes, HOA, insurance, etc. We don't even miss the money because it never enters an account we look at often. It does suck writing out checks and mailing them, but it's better than having a bank do it and say "whoopsie, you need to give us more!"

Endo Ag said:

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combat wombat said:

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How much you got?

Not having a mortgage is AWESOME!!

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So is having a crap ton of money invested and growing in the market.

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I struggle with this. I see what you're saying, but I also look at it like this...

Say we both buy a $250,000 house and everything is equal (down payment. HOA, insurance, rate, etc...hell, we're neighbors).

You pay the minimum you need to and plan to pay it off in 30 years and I plan on paying it off in 10. You'll be paying X to mortgage and Y to savings/investment while I pay X+Y to mortgage. After 10 years, you're still paying X to mortgage and Y to savings while I'll start paying X+Y to savings. In the 20 remaining years, will the gains of 30 years of Y be greater than 20 years of X+Y?

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My $0.02...20% at a minimum. The main reason for me is you won't have to escrow. I didn't put down 20% on my first place and had the bank come to me after the first year and ask for more money because they didn't calculate what I needed in my escrow correctly. After that, they kept a couple grand in there as a "buffer" which I thought was a crock. I can see $500 or so, but not $2k. Since, each house I've bought has had >20% down (did 30% on my current) for the simple fact that I don't want the bank keeping money from me that I can be earning something on.

You just have to be disciplined. My wife has a set amount direct deposited into a savings account (currently with AE) just for the purpose to cover taxes, HOA, insurance, etc. We don't even miss the money because it never enters an account we look at often. It does suck writing out checks and mailing them, but it's better than having a bank do it and say "whoopsie, you need to give us more!"

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Your taxes are your taxes. Sure you have to reserve the right amount, but most of the "come back" I've experienced is a change in taxes.

I don't think you're earning much on that tax money that it should be a contributing factor to one's decision. I get it from a bad experience point.

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You pay the minimum you need to and plan to pay it off in 30 years and I plan on paying it off in 10. You'll be paying X to mortgage and Y to savings/investment while I pay X+Y to mortgage. After 10 years, you're still paying X to mortgage and Y to savings while I'll start paying X+Y to savings. In the 20 remaining years, will the gains of 30 years of Y be greater than 20 years of X+Y?

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You could always model that and determine what the market breakeven point would be.

Out of curiosity I went ahead and modeled this in excel based on a 30 year loan of $200,000 with 5% interest and a 10% investment ROR.

The monthly payment is roughly $1k.

Scenario 1 - Monthly 1k payment, plus a 1k investment

• Investment Total Year 10 - $194k
• Investment Total Year 20 - $694k
• Investment Total Year 30 - 1.9 MM
• Mortgage Paid off Year 30

Scenario 2 - Double Payment (2k) monthly until mortgage paid off, then 2k monthly into investments

• Mortgage paid off Year 11, $0 invested
• Investment Total Year 20 - 325k
• Investment Total Year 30 - 1.2 MM

Bottom line, with a 5% 30 year loan and 10% ROR, double payment vs. investing the difference results in a $700,000 difference in favor of the investor. (with an 8% ROR the double payment results in 1MM vs. 1.4MM for the investor).

Obviously this has a lot of variables and does not include risk.

Lower the Interest rate to like 3.9% and return to 8% and see what that gets you.

TIA

Wrighty said:

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goodman said:

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Out of curiosity I went ahead and modeled this in excel based on a 30 year loan of $200,000 with 5% interest and a 10% investment ROR.

The monthly payment is roughly $1k.

Scenario 1 - Monthly 1k payment, plus a 1k investment

• Investment Total Year 10 - $194k
• Investment Total Year 20 - $694k
• Investment Total Year 30 - 1.9 MM
• Mortgage Paid off Year 30

Scenario 2 - Double Payment (2k) monthly until mortgage paid off, then 2k monthly into investments

• Mortgage paid off Year 11, $0 invested
• Investment Total Year 20 - 325k
• Investment Total Year 30 - 1.2 MM

Bottom line, with a 5% 30 year loan and 10% ROR, double payment vs. investing the difference results in a $700,000 difference in favor of the investor. (with an 8% ROR the double payment results in 1MM vs. 1.4MM for the investor).

Obviously this has a lot of variables and does not include risk.

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The fundamental flaw of any analysis like this is the personal finance side of it. People dont invest the extra $1k for 30 years. That "extra" money gets pulled from for other stuff like toys and braces and boats.

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I agree. Just like people usually don't pay double payments every month. But the question was asked and I was curious.

Also, this is a business and investing board, so hopefully the people here are different and actually put theory and math into practice.

goodman said:

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Out of curiosity I went ahead and modeled this in excel based on a 30 year loan of $200,000 with 5% interest and a 10% investment ROR.

The monthly payment is roughly $1k.

Scenario 1 - Monthly 1k payment, plus a 1k investment

• Investment Total Year 10 - $194k
• Investment Total Year 20 - $694k
• Investment Total Year 30 - 1.9 MM
• Mortgage Paid off Year 30

Scenario 2 - Double Payment (2k) monthly until mortgage paid off, then 2k monthly into investments

• Mortgage paid off Year 11, $0 invested
• Investment Total Year 20 - 325k
• Investment Total Year 30 - 1.2 MM

Bottom line, with a 5% 30 year loan and 10% ROR, double payment vs. investing the difference results in a $700,000 difference in favor of the investor. (with an 8% ROR the double payment results in 1MM vs. 1.4MM for the investor).

Obviously this has a lot of variables and does not include risk.

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The other major variable here is appreciation of the home value. The homeowner gets 100% of appreciated value whether they're paying double on the mortgage or not. So unless youre certain youre going to be in that exact house for 30+ years. Why not enjoy 100% of the appreciation while paying half as much, and putting the other half to work elsewhere earning additional returns.

3 months and out!

Most first time buyers can't afford the home to raise their family completely as you phrased it. In 5 years maybe 7 or 8 a vast majority of people will have moved up.

John Francis Donaghy said:

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goodman said:

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Out of curiosity I went ahead and modeled this in excel based on a 30 year loan of $200,000 with 5% interest and a 10% investment ROR.

The monthly payment is roughly $1k.

Scenario 1 - Monthly 1k payment, plus a 1k investment

• Investment Total Year 10 - $194k
• Investment Total Year 20 - $694k
• Investment Total Year 30 - 1.9 MM
• Mortgage Paid off Year 30

Scenario 2 - Double Payment (2k) monthly until mortgage paid off, then 2k monthly into investments

• Mortgage paid off Year 11, $0 invested
• Investment Total Year 20 - 325k
• Investment Total Year 30 - 1.2 MM

Bottom line, with a 5% 30 year loan and 10% ROR, double payment vs. investing the difference results in a $700,000 difference in favor of the investor. (with an 8% ROR the double payment results in 1MM vs. 1.4MM for the investor).

Obviously this has a lot of variables and does not include risk.

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The other major variable here is appreciation of the home value. The homeowner gets 100% of appreciated value whether they're paying double on the mortgage or not. So unless youre certain youre going to be in that exact house for 30+ years. Why not enjoy 100% of the appreciation while paying half as much, and putting the other half to work elsewhere earning additional returns.

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The other other major variable is inflation. Prepaying interest for a 30 year is on a discounted return if you think inflation will continue to rise.

If you think your wages will grow in the future, then don't pre-pay. Our $1,200 mortgage will feel like a grocery budget in two decades.

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Most first time buyers can't afford the home to raise their family completely as you phrased it. In 5 years maybe 7 or 8 a vast majority of people will have moved up.

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I think people make choices to favor other aspects of their lives in relation to their housing needs and sacrifice space for location...rather than it being a "can't afford" situation.

I am only advocating that life can throw you for a loop and you might not be able to move up, so don't allow the house you choose to dictate your family size. This many mean moving to an "undesirable" location to get the house you want...but most learn that it's not an undesirable as you first thought.

diehard03 said:

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Our $1,200 mortgage will feel like a grocery budget in two decades.

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I must be living 2 decades in the future.

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My thoughts exactly. Three growing boys in the house - $1200 is now.

Down payment % = your age

And don't carry a mortgage after age 55. So if you're 40, put down 40% and amortize the balance on a 15 yr term.

We put about 10 percent down and paid extra to not have PMI. Ran the numbers and was somewhere around 3-4 years and paid for itself. Not a bad option if tight on cash and don't want to pay pmi (I don't!).

Prob next mortgage will be 20 percent down. I'm starting to pay off my current mortgage more rapidly now (throwing in double pmts every few months).

Mose Schrute said:

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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.

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This x1000. If only I could do it again at the OPs age. Look, if you don't have kid #2 already 8months in the incubator, get a 3%down FHA on a place you can rent out, maybe even a duplex and live for at least a year. Wife is going to be claiming she "needs" something biggger by the time the youngest kids are getting into elementary school. At least this way you have an asset to build wealth on.

The potential issue there becomes the ability of a first time move up buyer being able to qualify without selling the trailing house.

I think I'm leaning toward waiting another year and then putting down 20% and getting a 15 year mortgage.

With the slowdown coming there's a good chance it'll be a buyer's market again soon.

I tend to think that prices actually won't go down a whole for a long time.

mrmill3218 said:

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I tend to think that prices actually won't go down a whole for a long time.

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They might not go down but the market has really cooled off. I'm about to sell my house to build right next to the kids' school - houses that sold in under 2 weeks last year are taking a couple of months to sell now. If you're looking at anything above 200-250k in my area (western Fort Worth) you should see better inventory than in the last few years.

Looking in DFW now, darn near everything on the market has gotten a $10-30k price reduction over the last month or so.

What do you mean by selling the trailing house? First time buyers are one of the primary purpose of FHA loan.

I have bought and owned 2 houses in my life and both times I put down 20%. When I bought my first for $202k, I put down 20% and had only $1500 in the bank. Thank god I didn't lose my job.

Then I put down 20% when I upgraded to a house and in 7 years paid it all off. No mortgage anymore. Feels good!

Maybe I misread your post. I read it to mean buy FHA, retain that home as an investment property and buy the move up house. If that's what you meant I was referring to the need to qualify with 2 mortgages when moving up.

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We put about 10 percent down and paid extra to not have PMI. Ran the numbers and was somewhere around 3-4 years and paid for itself. Not a bad option if tight on cash and don't want to pay pmi (I don't!).

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I assume you didn the upfront PMI then? (or called a "PMI buyout", but it's essentially just your monthly payment to the limit paid up at once)

, .
I think that you need to weigh everything first.