Should I put a down payment on my house?

[koopmma]

First time I have posted but have been reading for awhile and would like your opinions.

I recently moved from Kansas City to Seattle and when we sold our house we received about $50k cash. Houses in Seattle are between $450-500k so I wont have the 20% to put down anyway.

Am I better off putting the $50k as a down pymt or should I put it in an ETF following the market? Although I am trying to learn more about trading I am not kidding myself into thinking I can beat the market right now on a consistent basis.

Is it feasible to get the 6.5-7.0% needed to make more than the mortgage interest? Are there other factors that I am not thinking of? I have heard some theories that it is dumb to let principal sit in your house and I tend to agree I just dont know how feasible it is to get the proper return. My wife and I make good money and saving isnt really the issue. I just want to try to make the best decision.

Thanks in advance.

Matt

[ilikeaces86_]

You have to pay taxes on gains in the market so a 10% annual return is not really a 10% return. Probably for the avg person your better of putting some down as its guaranteed 6.5% return.

[prohornblower]

Some people say put as little as possible down and use the freed up capital to invest.

Some say put 20% down to avoid PMI.

Some say put as much down as you need to procure the lowest rate possible, and keep the rest.

Some say pay as much now as you can and invest down the road when you own your home.

It's basically a line between peace-of-mind, and mathematics. Mathematically, putting the least amount down possible might be the way to go, but some people like knowing that their payments are lower, and they'll own their home sooner.

Depends upon where you fall on the line.

[kagame]

The market may be near its high point before we seem some sort of recession related downturn. This is not imminent, but perhaps sometime soon (2-3 years imo).

Considering that, lump sump investments in market tracking ETFs are a terrible idea. You need to allow dollar cost averaging with small frequent investments take hold and cancel out the highs and lows of the market, while hopefully retaining you the average long term growth.

This said, start investing monthly into mutual funds, AND consider putting money down on your home as a completely separate money management effort.

Your home is not an investment. Lets be clear, it has to be replaced when you sell it.

[koopmma]

I am not sure I agree with point on we are due for a crash so don't invest. I would think of this as a longterm investment and would hope over 20-30 years deviations would happen but my avg return would be greater than the mortgage interest rate.

I did not however think about the dollar cost averaging aspect and think it would be a definite negative.

Thanks for your reply.

[mtgordon]

Nobody knows if the market is going to have a downturn in the next 2-3 years imo. It will go down at some point, and it will go up at others. Trying to predict the market will most likely only get you in trouble. Dollar cost averaging has been shown to decrease your average return rather than increase it (although it probably decreases risk).

People on this board seem to be much more supportive of index funds over mutual funds mainly because most managers do cannot beat the market after their fees.

I'd be interested in hearing why your home is not an investment as it seems like something you put money in and the price fluctuates (and hopefully goes up over time). You don't necessarily have to replace it when you sell it as you can do a reverse mortgage or you could just rent afterwords.

[SomethingClever]

It's almost always worth trying to put 20% down to avoid PMI. There are ways you can do this even if you don't have 20%. For example, you can buy the house and at the same time do an interest-only HELOC for the additional 50k. Or something like that... talk to a mortgage broker.

In any case, PMI is like $100 a month, isn't it? Which is equivalent to like 2.5% on 50 grand... I think it would be tough to give that up and still come out ahead by investing the money.

[Butcho22]

[ QUOTE ]

In any case, PMI is like $100 a month, isn't it?

[/ QUOTE ]

I just hooked my buddy up with a loan for a condo and his PMI payment is $102 on a $165,000 loan.
You're looking around .79% of the loan balance until you drop below 80%LTV.


.79% on a $500k loan is $329.

[SomethingClever]

[ QUOTE ]
[ QUOTE ]

In any case, PMI is like $100 a month, isn't it?

[/ QUOTE ]

I just hooked my buddy up with a loan for a condo and his PMI payment is $102 on a $165,000 loan.
You're looking around .79% of the loan balance until you drop below 80%LTV.


.79% on a $500k loan is $329.

[/ QUOTE ]

Well, this should answer OP's question!

[Lunger]

Instead of making monthly PMI payments or taking on a second mortgage or HELOC, you can pay for PMI upfront and roll it into the 1st mortgage. It should cost 1% to 1.5% of the purchase price and since it is in the loan, it will be tax-deductible. Mortgage brokers rarely explain this option (or claim not to know about it) since they stand to make more money off you by having you get a second mortgage to avoid PMI. It is the least costly way to purchase a home without the 20% down if you will be in the house long-term.