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Mojo
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Registered: 07/12/07
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Should I be saving for a down payment on a house?
#23586350 - 08/28/16 09:45 AM (7 years, 5 months ago) |
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We have been saving for a down payment on a house. We have about $50k available and about 15% of that in investments. Meaning I have over $40k sitting around in a savings account collecting dust..
My primary motive for having this money in savings, and not in the market, is mostly a result of not having a solid action plan for buying a house. And fear, I don't want to lose my savings..
Median home prices in my area go for $350k, so I still have a ways to go for that magical 20% down payment. And now I am starting to think, should I even make a 20% down payment?
My state offers a first time home buyer assistance program granting a mortgage at 3% down and no Mortgage Insurance... We have to meet income requirements for this program and I think we can swing that if we buy a house before my partner begins working full time..
With that in mind, is there any reason not to start investing our excess income? Even if we didn't qualify for for the State mortgage assistance program, why bother saving for a down payment with interests rates where they are?
How are other people approaching this?
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Ikarus
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Re: Should I be saving for a down payment on a house? [Re: Mojo]
#23586476 - 08/28/16 10:44 AM (7 years, 5 months ago) |
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Not a loan or real estate professional, but here's my two cents.
I'd talk to a broker and get in touch with someone at the state lending program now and see what your loan options are. You're farther from the 20% than you think, because you have to factor in closing costs on top of your down payment, which are significant. On top of that, the lender may want to see a month or two of reserve funds in your account.
if you can qualify for the state program, I see zero reason to save more money. A big part of 20% down is to avoid the mortgage insurance premiums. If you don't qualify, you can generally still get a decent conventional loan at 5% down, assuming you're willing to pay a percentage of the home value, probably something like $150-200 a month, on mortgage insurance until you get to 20-22% equity.
My situation: I got a loan at 5% down because I live in a state with retarded home prices (you can probably guess which one) and was never going to be able to get to 20% within any reasonable amount of time. Home ownership is important to me, so the mortgage insurance premium is worth it.
As far as maximizing the value of your money in a down payment vs investment situation, that depends on how you handle risk. With something relatively 'safe' like an index fund, you would probably see greater returns on a good portfolio than you would see in savings on a higher down payment, given today's interest rates, but that's a whole other topic that has to do more with how you feel about money than anything else (speculative gains vs known savings, etc)
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badchad
Mad Scientist

Registered: 03/02/05
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Re: Should I be saving for a down payment on a house? [Re: Mojo]
#23589221 - 08/29/16 07:25 AM (7 years, 4 months ago) |
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OP, if I were you I'd opt for the first time buyer program and go 3%.
The primary reason is because mortgage rates are so low. You want to lock in ASAP because any increase will make a huge difference.
The second reason is because of the market prices in your area. If houses are running 350k, I'd speculate its because you're in an area of fairly high demand. I'd guess that your home values will increase beyond the mortgage interest, which means that the sooner you buy, the sooner you'll get above water.
The only downside is the extra mortgage insurance. Talk to your broker and see if you can avoid that if you pay a lump sum in the future.
-------------------- ...the whole experience is (and is as) a profound piece of knowledge. It is an indellible experience; it is forever known. I have known myself in a way I doubt I would have ever occurred except as it did. Smith, P. Bull. Menninger Clinic (1959) 23:20-27; p. 27. ...most subjects find the experience valuable, some find it frightening, and many say that is it uniquely lovely. Osmond, H. Annals, NY Acad Science (1957) 66:418-434; p.436
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Brian Jones
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Re: Should I be saving for a down payment on a house? [Re: badchad]
#23589627 - 08/29/16 10:58 AM (7 years, 4 months ago) |
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New cars are nice but the second you dive it off the lot its worth at least 15% less. Buy a house in a reasonable neighborhood. If it's not nice work on fixing it up. You will never regret this decision.
-------------------- "The Rolling Stones will break up over Brian Jones' dead body" John Lennon I don't want no commies in my car. No Christians either. The worst thing about corruption is that it works so well,
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LogicaL Chaos
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Re: Should I be saving for a down payment on a house? [Re: Mojo]
#23593156 - 08/30/16 10:39 AM (7 years, 4 months ago) |
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damn, 40 grand?
Thats a shit load of savings. Maybe look for a house thats 200-250 grand so a smaller down payment?
Im pretty sure the cheaper the house, the smaller yearly income u need, as the payments and cost of a cheaper house is lower.
Or you could buy a boat? cause boats are really fun to drive around.
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