House downpayment, a few questions

[JB25163]

What sort of downpayment (%) range should I be looking at when looking into getting a house? Also, is there a big difference in cost for building new versus buying existing for the same type of house?

[koolmoe]

If you want to go with conventional financing, you will find that the expectation from the lender is that you will put 20% down. However, if you are willing to pay mortgage insurance, you can easily secure a loan from conventional lenders with as little as 5% downpayment.

Mortgage insurance (aka PMI) is an additional fee you pay for the extra risk that the lender assumes by lending such a high percentage of the home's value to you. You can dump your mortgage insurance payment as soon as you have 20% equity in your home, either through making payments or through the increase in your property value. You will definitely need a reappraisal if you intend to dump the PMI based on property value increases, and you often will need to refinance. Check with your lender on procedures for doing this.

One alternative to mortgage insurance is a home equity loan or home equity line of credit. In this scenario, you would borrow the additional amount necessary so that your first mortgage was only 80% of your home's value. IOW, if you are buying a $200,000 home and you want to put down $20,000 (10%) you would also take out a home equity loan for $20,000 (10%) leaving the remaining $160,000 (80%) for the first mortgage. Since none of the loans are for more than 80% of the home's value, you will avoid PMI. One advantage of this scenario is that the interest paid on your home equity loan (or line of credit) is tax deductible.

An additional advantage of having 20% equity in your home (which may be a disadvantage depending on your personality) is that you can avoid paying your property taxes and home owner's insurance payments into escrow. This allows you to earn interest on those payments, which isn't possible when the amounts are escrowed. But you'll have to pay your taxes in a lump sum, usually in December. Depending on your insurer, you may also have to pay your insurance in a lump sum. My insurer allows me to make monthly payments, so there is a big advantage for me not to escrow.

If you are planning to put down less than 20%, you will have to choose between PMI and a home equity loan. Your lender should be able to give you estimates of each scenario beforehand via a Good Faith Estimate (GFE). What you'll often find is that the PMI and home equity loans are approximately equal in monthly payment, but when you consider the tax advantage of the home equity loan, it will look more favorable. However, you need to consider the real estate market and the interest rate market to determine which path is more favorable.

[!Luck]

If you live in a large metropolitan area there are tons of mortgage brokers who are willing to finance your home with no money down. However, when you do this your PMI is going to be through the roof. Also, do not forget about closing costs that in some instances can add another 2% to the purchase price of the home. Lastly, some mortgage brokers will pay your closing costs by increasing the rate your charge this may be an option if you plan to quickly refinance (within a year) to try to get out of a PMI.

P.S. Thanks for stealing my picture.

[bode]

avoid paying PMI if you can, its a totally unecessary cost.

[AHiltz]

It is cheaper to buy then it is to build. Building material prices have sky rocketed over the past 2 years. Copper for instance has close to tripled here.

Shop around for the best rates/offers on your mortgage. Here in Canada ScotiaBank offers a no downpayment mortgage for instance.

[UG]

If you put down 20% you'll avoid PMI which is a good thing.

Our bank worked it out where we could put 10% down and still avoid it, and then we'd have two other loans for our house (10/80/10). We decided to put down 15% and got a 15/80/5 or something like that.

Basically, avoid PMI if you can.

[bode]

If you put down 20% you'll avoid PMI which is a good thing.

Our bank worked it out where we could put 10% down and still avoid it, and then we'd have two other loans for our house (10/80/10). We decided to put down 15% and got a 15/80/5 or something like that.

Basically, avoid PMI if you can.

this is similar to what my wife and i did. we talked to our local "hometown" bank where both of our parents have banked for 20+ years. we ended up putting a 15% downpayment and they waved PMI.

[Rondavu]

I would avoid PMS as much as possible.

[chardrian]

I rarely, if ever, get pms.

[cobere]

I rarely, if ever, get pms.

LOL one time, really loud. Good one.

[koolmoe]

Basically, avoid PMI if you can.

The interest cost on a home equity loan is real money, and the tax deduction only reduces the cost by 1/3 or less. Plus, some home equity products will require interest-only payments, meaning that the principal never reduces unless you make a point to pay extra.

The advantage of PMI is that you can get rid of it pretty quickly if property values are rapidly increasing. But you'll have to stay on top of it and you may incur refinancing costs. This can be much better than a home equity loan, particularly when interest rates are high.

It's not a simple comparison to make, though, and most often the prospective homeowner comes out ahead by taking the home equity product to make up the extra 5, 10, or 15 percent.

[Galapogos]

I rarely, if ever, get pms.

Wow, all this time I thought you meant private messages. and then there was light!

[mrhappy333]

I rarely, if ever, get pms.

Wow, all this time I thought you meant private messages. and then there was light!

Duh, I'm in the same boat, now it makes sense.

[JB25163]

P.S. Thanks for stealing my picture.

haha, I didn't even realize

[Sighman23]

Just an FYI, as of 2007 PMI will be tax deductible on any new loan.

[chardrian]

I rarely, if ever, get pms.

Wow, all this time I thought you meant private messages. and then there was light!

That's the beauty of being a shemale.