Buying new home, need your thoughts on mortgage.

[JMapleton]

5% down is a red flag for me. If you can't afford 20%, you can't afford the home. That's my two cents anyway.

I generally agree, but why give the bank 20%, which for some can be $40k+, when you can keep that money and invest it and borrow the 20% for record low rates?

Just because you got 20% to put down, doesn't always mean you should, especially when it's so cheap to borrow.

 

[postmortemIA]

5% down is a red flag for me. If you can't afford 20%, you can't afford the home. That's my two cents anyway.

Most first time buyers don't have 20% down. I've seen 5% - 10% being most common amount in our stable market.

 

[RichieZ]

Well I'd consider it to be pretty good, I just locked at 3.2% 30yr fixed, no points no fees and I put down 25%.

 

[kalrith]

Considering that the Fed is going to keep rates around 0% for the foreseeable future, and that even if the ARM did rise by the maximum amount EVERY year (unlikely) it still wouldn't exceed the 15-year payment, your concerns aren't entirely warranted. Obviously it's a risk, but so is the 15-year mortgage, in a different sort of way.

A 30-year mortgage at 7.5% would have a higher monthly payment than my 15-year at 2.875%. I think it's entirely possible for that to occur with a 5/1 ARM.

I don't look at my mortgage as a monthly payment. I look at it as the total cost of the loan. In your scenario, I'd be paying more money for the exact same loan amount, and possibly much more money. Here are a few possibilities:

I plan to pay extra money towards my 30yr mortgage, but I don't; I just pay the minimum (this is the most common pitfall of this strategy)

If I get an ARM and the rates adjust up, that effectively extends the life of my mortgage. I'm now paying an extra $100 (or $0) instead of $200 every month. So, my 15-year mortgage plan has just turned into a 20- or 25-year mortgage plan unless I increase my payments above what my 15-year payments would've been.

5/1 ARMs are for if you plan on staying in the home for about that amount of time or less

Unfortunately many people have gotten ARMs thinking that they'd only be in the house for 5 years. 10-15 years later when their interest has gone through the roof, they're wishing that they went with a fixed rate. Obviously if you really only stay in the house for 5 years, it's fine. But since we can't know for sure what the future holds, I'll gladly take my fixed rate over an ARM.

 

[Naeeldar]

5% down is a red flag for me. If you can't afford 20%, you can't afford the home. That's my two cents anyway.

Completely depends on the context. I bought a condo when I broke up with my ex two weeks later and so only had 3.5% to put down (FHA) but since I had the Obama credit there was no point not to wait (I got in the last 2 months of the credit).

Anyway I'll have my mortgage paid off in about 5 more years. Everything is about context. And context aside with rates at historic lows your better off leveraging more money now and using your money on other investments.

 

[kevman]

Not anymore. I just refinanced to 3.25 on a 30 year loan for my house in August.

nice. I did a 2.75 on a 15 year. will be done with my mortgage just in time for kids college lol.

 

[purbeast0]

Something is not adding up at all there. Is that 5% down included in the closing costs? Or in addition to? Because that is an insane amount of closing costs. If it's new construction there should be no (or little)interest or escrow on taxes to include as you won't be full assessed yet. You'll basically be paying orientation fees, appraisal, first years insurance potentially....a couple grand of fees. But not $9,000.

And at 3.25% that has to be a 15 year rate. Not a 30. Unless those fees include a massive amount of points paid in which this case would take almost the life of the loan to repay.

You really need to look at the good faith estimates and see what is going on there. Those are very expensive closing costs.

my closing costs were like $17k, and that is without the down payment.

 

[kalrith]

My closing costs were about $3,500 on a $115k purchase without the down payment. My down payment was $6,355, or 5.5%.

 

[JoeyP]

I would never buy a house unless I had at least 25% down, and was in a fixed rate 15 year conventional loan.

 

[vi edit]

my closing costs were like $17k, and that is without the down payment.

It was also an existing home. Not a new construction. A portion of that was probably pro-rated taxes. New constructions can take up to 18 months to be fully assessed and the escrow companies can not collect on that ahead of time or price your escrow based on estimate.

Unless it's an oddball situation where the builder has sat on the home for a couple years and the place has been fully assessed there should not be much in the way of taxes to collect on the place.

That's why I was skeptical on the closing costs. I've bought 4 different houses(3 of which were new), had a construction loan, and done 3 refi's. I've never had a closing/refi/settlement more than $4,000. And that's on houses costing 120k, 190k, 240k, and 425k.

 

[Linflas]

5% down is a red flag for me. If you can't afford 20%, you can't afford the home. That's my two cents anyway.

Really? We bought our first house with 0% down and over a 24 year history of mortgage payments and 2 houses we have never made a down payment on a house nor missed a mortgage payment.

 

[Fritzo]

That type of deal is very common and a great way to get people into a new home.

However, do keep in mind that after insurance and property taxes rolled in, you can expect your monthly payment to be 20-30% higher than the price they're quoting you. That part gets a lot of new home buyers in trouble 🙁

 

[Vdubchaos]

I'm with Suze Orman on this one.

Until you have 6-9 months of emergency fund in you bank account AND 20% down payment......you are simply NOT ready to buy a home.

I would follow this rule and I understand many here will not agree......but it's still a great rule of thumb.

You are making THE BIGGEST purchase of your life. And you should be doing it because you are READY not because "builder is offering some "deal" financing".

Just me though.

 

[sdifox]

I'm with Suze Orman on this one.

Until you have 6-9 months of emergency fund in you bank account AND 20% down payment......you are simply NOT ready to buy a home.

I would follow this rule and I understand many here will not agree......but it's still a great rule of thumb.

You are making THE BIGGEST purchase of your life. And you should be doing it because you are READY not because "builder is offering some "deal" financing".

Just me though.

Wife has got to be the biggest purchase of your life 😎


I was out of mortgage. Didn't last more than 2 years now I am back into one 🙁

 

[purbeast0]

I'm with Suze Orman on this one.

Until you have 6-9 months of emergency fund in you bank account AND 20% down payment......you are simply NOT ready to buy a home.

I would follow this rule and I understand many here will not agree......but it's still a great rule of thumb.

You are making THE BIGGEST purchase of your life. And you should be doing it because you are READY not because "builder is offering some "deal" financing".

Just me though.

what you are saying simply is not realistic in certain markets and varies greatly based on circumstances. having a zero tolerance rule like that is being very close minded.

 

[Vdubchaos]

what you are saying simply is not realistic in certain markets and varies greatly based on circumstances. having a zero tolerance rule like that is being very close minded.

OK but it's what people did prior to the 90s as they had no choice. Before they got rid of regulations and let the market get wild. Which brings us to where we are today.

Saving 20% is NOT unrealistic. It teaches you certain discipline and patience with is NEEDED before you are a home owner.You have to EARN it and be responsible PRIOR not "after".

Just because bank is willing to hand out loans left and right, does not mean/or define that you SHOULD do it.
Bank tells you that you CAN.
YOU tell yourself if you SHOULD.

Sure I have a great credit score and 100k loan ready for me WHENEVER I want it. Guess what, it would be VERY stupid for me to take it out.....just because I CAN and would get me into trouble PRETTY quickly.

Saving 20% has it's pros and cons, but it's a good rule of thumb.

Patience is the key to success.

Watch and listen CAREFULLY
http://www.youtube.com/watch?v=GnjSOQXP_4Q

I'm not the biggest fan of this lady (quite opposite to be honest) but she is damn right on this one.

 

[purbeast0]

OK but it's what people did prior to the 90s as they had no choice. Before they got rid of regulations and let the market get wild. Which brings us to where we are today.

Saving 20% is NOT unrealistic. It teaches you certain discipline and patience with is NEEDED before you are a home owner.You have to EARN it and be responsible PRIOR not "after".

Just because bank is willing to hand out loans left and right, does not mean/or define that you SHOULD do it.
Bank tells you that you CAN.
YOU tell yourself if you SHOULD.

Sure I have a great credit score and 100k loan ready for me WHENEVER I want it. Guess what, it would be VERY stupid for me to take it out.....just because I CAN and would get me into trouble PRETTY quickly.

Saving 20% has it's pros and cons, but it's a good rule of thumb.

Patience is the key to success.

again, you are being very close minded and only thinking about your market. other markets are totally different and it's just not feasable.

back in the 90's houses were not nearly as expensive as they are now so it was much easier for people to save 20% than it is now.

my mom's house they bought for around $90k back in the 80's. her neighbors house just sold for $420k and it needs A LOT of work, and this is for like a 1600sqft house, if that.

so 20% of 90k is a lot easier to save than 20% of 420k.

 

[Vdubchaos]

again, you are being very close minded and only thinking about your market. other markets are totally different and it's just not feasable.

back in the 90's houses were not nearly as expensive as they are now so it was much easier for people to save 20% than it is now.

my mom's house they bought for around $90k back in the 80's. her neighbors house just sold for $420k and it needs A LOT of work, and this is for like a 1600sqft house, if that.

so 20% of 90k is a lot easier to save than 20% of 420k.

You must be a realtor.....

Listen, I don't think I'm close minded, just trying to give best advice.

It's IRRELEVANT what market you are in or where you live. What people make and cost of living in those areas offset this.

You either have 20% down + emergency fund OR you are not ready (to me)

Take it however you want it. It's my personal advice that I will stand by no matter what.

Many financial experts seem to agree with me.

And no, financial expert is NOT your realtor, Bank or investor. It's a person that has 0 conflict of interest (good luck finding that person).

I posted this video AFTER you replied. Watch it
http://www.youtube.com/watch?v=GnjSOQXP_4Q

 

[purbeast0]

You must be a realtor.....

Listen, I don't think I'm close minded, just trying to give best advice.

It's IRRELEVANT what market you are in or where you live. What people make and cost of living in those areas offset this.

You either have 20% down + emergency fund OR you are not ready (to me)

Take it however you want it. It's my personal advice that I will stand by no matter what.

Many financial experts seem to agree with me.

And no, financial expert is NOT your realtor, Bank or investor. It's a person that has 0 conflict of interest (good luck finding that person).

I posted this video AFTER you replied. Watch it
http://www.youtube.com/watch?v=GnjSOQXP_4Q

no i'm not a realtor and no i'm not going to watch that video.

i'm already a home owner and not really concerned at this point, nor would i have ever taken your advice because it's simply unrealistic unless i wanted to wait until i was 40 or 50 to buy a house, or live in a shitty area and have a shitty commute and not be able to enjoy my life as i currently do.

you simply are not taking markets into consideration so we'll agree to disagree.

 

[Naeeldar]

OK but it's what people did prior to the 90s as they had no choice. Before they got rid of regulations and let the market get wild. Which brings us to where we are today.

Saving 20% is NOT unrealistic. It teaches you certain discipline and patience with is NEEDED before you are a home owner.You have to EARN it and be responsible PRIOR not "after".

Just because bank is willing to hand out loans left and right, does not mean/or define that you SHOULD do it.
Bank tells you that you CAN.
YOU tell yourself if you SHOULD.

Sure I have a great credit score and 100k loan ready for me WHENEVER I want it. Guess what, it would be VERY stupid for me to take it out.....just because I CAN and would get me into trouble PRETTY quickly.

Saving 20% has it's pros and cons, but it's a good rule of thumb.

Patience is the key to success.

Watch and listen CAREFULLY
http://www.youtube.com/watch?v=GnjSOQXP_4Q

I'm not the biggest fan of this lady (quite opposite to be honest) but she is damn right on this one.

The point purbeast was tyring to make though is that you should not have a hard limit. In the 90's housing was about 1/3 cheaper as well so it was a hell of a lot cheaper. I know my parents bought a 4 bedroom, 1 car garage home in 1990 with an in ground pool for $140,000. I just paid $160,000 for my 2 bedroom 2 full bath condo.

Anyway you have to look at a person's complete financial situation before you make rules up, especially with the deals to be had. I put down 3.5% on my condo as I had only $20k in savings when I broke up with my. My mortgage is the cost of what rent woudl be and I actually get to own the property. Oh and I got the $8k tax credit. telling somebody to pass up a situation like that because they don't have 20% down is nuts.

Heck if your mortgage is at all close to rent you may as well buy even if you don't have 20% - it's easier to get out of a mortgage than it is rent.

The whole point is the entire financial situation is what matters. I put 3.5% down and about 7.5 years into the loan it will be fully paid off.

 

[thing1thing2]

Mind if I ask, where they allowing you to put 5%? Most places are asking for 20% down or 25% down for investment properties.

 

[vi edit]

Heck if your mortgage is at all close to rent you may as well buy even if you don't have 20% - it's easier to get out of a mortgage than it is rent. The whole point is the entire financial situation is what matters.

That's not true at all. You can take a bloodbath getting out of a mortgage (especially if you don't have 20% down). Once you factor in closing costs to buy, realtor fees to see, another slew of local taxes and fees that can add up to another 1.5% to 3% on top of the 5%-7% of a realtor plus the risk of the house selling for less than you bought and all of the time, energy, and costs you dropped in it making it "yours"...

You can get slaughtered dumping a house in less than 5 years of buying it. If you don't have 20% then those costs come out of your pocket to unload the house.

Sure you can have a breach of contract on a rental, but at least with some landlords if you have a suitable candidate lined up in your place they'll let you out of the breech of lease.

 

[dbk]

I wish I lived in a cheap market like some of you where a 3br house cost 150k... LOL

 

[Naeeldar]

That's not true at all. You can take a bloodbath getting out of a mortgage (especially if you don't have 20% down). Once you factor in closing costs to buy, realtor fees to see, another slew of local taxes and fees that can add up to another 1.5% to 3% on top of the 5%-7% of a realtor plus the risk of the house selling for less than you bought and all of the time, energy, and costs you dropped in it making it "yours"...

You can get slaughtered dumping a house in less than 5 years of buying it. If you don't have 20% then those costs come out of your pocket to unload the house.

Sure you can have a breach of contract on a rental, but at least with some landlords if you have a suitable candidate lined up in your place they'll let you out of the breech of lease.

I was factoring local taxes into rental costs. I also factored in the tax write off. Finally, I also assumed that even if you lost your job you'd hold on to the house for a minimum of 3-4 years. Granted you'll probably come out even or a bit behind but odds are great you'll probably end up holding on to the house for 10 or more years regardless, in which case you get the tax deductions and ownership earlier in life.

I'm also assuming people putting down 3.5% are probably spending $250k or less in which case it's easier to have the higher costs.

That said I made a blanket statement which is what I said vdub was doing. So it's a fair point and another reminder of why context is so important.

 

[Vdubchaos]

The point purbeast was tyring to make though is that you should not have a hard limit. In the 90's housing was about 1/3 cheaper as well so it was a hell of a lot cheaper. I know my parents bought a 4 bedroom, 1 car garage home in 1990 with an in ground pool for $140,000. I just paid $160,000 for my 2 bedroom 2 full bath condo.

Anyway you have to look at a person's complete financial situation before you make rules up, especially with the deals to be had. I put down 3.5% on my condo as I had only $20k in savings when I broke up with my. My mortgage is the cost of what rent woudl be and I actually get to own the property. Oh and I got the $8k tax credit. telling somebody to pass up a situation like that because they don't have 20% down is nuts.

Heck if your mortgage is at all close to rent you may as well buy even if you don't have 20% - it's easier to get out of a mortgage than it is rent.

The whole point is the entire financial situation is what matters. I put 3.5% down and about 7.5 years into the loan it will be fully paid off.

It all sounded great until you wrote what's in bold.

Sorry buddy but it's MUCH harder to get out of mortgage when you DON'T HAVE 20% equity than it is rent.

at 3.5% down, you are talking about PAYING to get rid of the house (if crisis comes).

But it does depend on the markets, HOWEVER we cannot take all of those details into consideration here as they simply haven't been provided (we would need to know EVERYTHING, income/spendings etc).

So we just have to go with general rule....

That said I made a blanket statement which is what I said vdub was doing. So it's a fair point and another reminder of why context is so important.

I have to make a blanket statement assuming average house price in US and salary. Again, OP cannot possibly provide us with EVERY details one needs to determine which advice to give.

simply unrealistic .

You know what's unrealistic? Every American thinking that they are privileged to own a house and every institution telling them that it's true.

Go around the world, Home Ownership is a DREAM. Dreams hardly EVER come true.

Welcome to reality.