Real Estate Home Mortgages/Amount of Down/Percentage of Assets
Hi, Ron --
We're trying to decide whether to purchase a home, and if we do, how much to put down. The house price we'd like to pay is $250,000, and we'd put down somewhere between $70,000 and $100,000. Doesn't seem like much of a difference, but our liquid savings are roughly only twice that (plus, we have about that much again in stocks, and we own a paid-for home worth about $250,000 which we're leasing out).
What would you advise? Thanks! Katie and Layne
Good afternoon on the West Coast!
Well, there are two things the quickly come to mind, first is that money is very inexpensive right now and having you borrower more makes a little more sense. The other thing is you will want to put down at least 20% to avoid PMI (Private mortgage insurance) I am assuming this is either an owner occupied home or a second home. If either is the case you will get better interest rates and terms. If they classify the new mortgage as an investment property you may, pay a little higher rate, and also may be required to put more money down.
The only other reason you may need to put more money down is to reduce your debt to income ratio used in qualifying you for a mortgage if you don't earn enough to stay within the qualifying debt to income ratios. I guess the best way would be to have your loan originator give you 5-6 different payment and down payment options so you can then chose the best payment amount that works in your budget.
Here is the idea about putting less down. Even if you are conservative, having the money available to you to invest, even at a average rate of return, most likely will give you more flexibility than putting more money down.
You can almost always put the extra money down on the mortgage balance in the future without any prepayment penalty. When you prepay on a mortgage you usually will reduce the term ONLY, but you can request if your lender will recast in the event you chose to do this in the future. The idea is that if you prepay on your mortgage you ask the lender to keep the number of years the same but just reduce the payments. They may charge $250 in fees but you will be able to keep your interest rate and avoid all the closing costs that go along with refinancing.
The real answer is what ever you feel is more comfortable to you. If you ever needed to access the money later down the road on any home you will need to pay closing costs and also there would be no guarantee you can take all the cash back out (even if it is your equity) as most lenders get weird about why you want to take out cash, and if the reason is NOT acceptable to them they will not approve the loan. The only way then to access your equity/cash would be to sell.
Hope this helps a little!
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This topic answers questions related to purchasing a home, owning a home, home ownership, mortgage education, mortgage applications, and mortgage needs whether buying a first home or refinancing a current loan. Issues related to home ownership, home equity, mortgage education, refinacing options, home improvment finacing, first time home loans, home equity loans, vactation home loans, and mortgages for investment homes are dealt with here also. Though not the primary focus of this topic, Home Equity Lines of Credits (HELOCS), reverse mortgages, and calculating home equity may also be asked. If you do not see your home mortgae, home finacing, or home equity question answered in this area then please ask a question here