What will you put down?

December 1, 2010 · 36 comments

Let’s talk home ownership today, shall we? I know it isn’t for everyone, but I’m going to assume the majority of you already (or plan to) own a home. If you have no intentions of living the dream, then feel free to skip today’s article and laugh at what happens when you give two women exercise balls…
Modern Day Yoga Ball Jousting Gifs - Modern Day Yoga Ball Jousting

I know, it’s probably going to be really hard reading the rest of this article with that silly clip playing over and over, but do your best to focus.

Girl Ninja and I have a plan to save $100,000 before we look to towards home ownership. Don’t ask me how or why I came up with that figure, ’cause I wont be able to tell ya (I was probably drunk or something).

Yes, we plan to have a $100K in the bank, but that doesn’t necessarily mean we will use all of it as our down payment. Let’s say we buy a $300,000 house. We could put down $60K (20%) to avoid PMI. We could put $0 down and finance 100% of the cost, thus keeping our cash liquid. Or we could get crazy and use all $100K and start off with some pretty solid equity. I’m convinced options are a good thing, and a hundred grand gives me a heck of a lot of options.

What we end up putting down will probably depend on a few key factors…

1) Price of the home

2) Interest rate on mortgage

3) How much renovating would we have to do

4) How much cash do we want to keep

What works for one person, may not work for the other, so today I ask… How did you (or will you) save for your first place? Are you putting down 20% no matter what? Would you ever put 50% or more down? Anyone plan to finance as much of the purchase as possible?

1 Trina

1. Thank you for posting uber late at night…it gives me something to look forward to since I am up all night with a one month old:)
2. Do you really work for the government or do you just google hilarious video clips and creepy pics of dogs all day?
3. To get to your question: We bought our first home in 2004. We saved up money for the down payment by pocketing half of my first year teacher salary since I was living at home. When we moved back up to WA from CA I had $20k saved up and it just felt right to buy a house with that money and start our married life in our own place. The difference in price of homes in WA compared to CA was crazy…I thought the house we bought was a steal whereas my husband, who grew up in a teeny town in WA, thought the place was high priced compared to his home town. Anyhoo, that $20k was good for 5% down then we had two loans( 80/15). Looking back I am thrilled we bought when we did, although for our next home we would like to have a higher percentage for a down payment. And we have aggressively (in my opinion) paid down over 60k on the mortgage in the last 6 years, which I am super proud of.

2 StackingCash

I purchased a home back in 1999 for 140k. I put down 70k, which was part of my inheritance that came too early :( I took on a 15 year mortgage at 6.25%. My mortgage, including taxes and insurance, is around $800 a month. That 15 year mortgage is key. If you can do it I would highly suggest it. In 3 years we will own our home outright, I can only imagine if I had another 18 years to go. To actually have equity in my home is just as empowering as cash in the bank.

I hope you live up to your namesake and Punch Debt in the Face like I’m doing with my mortgage.

3 rachaek

DH and I put saved 90K and put down 75K on our 300K home (took us 18 months).
We kept 15K liquid and that is now our emergency fund (as we didn’t need to renovate like we thought)

Thinking about it, if we weren’t really wanting to having a baby ASAP, we would have put off getting a house for another 3 years until we could pay cash for a house, or pay a good 90% off the house immediately

4 First Gen American

We bought 2 houses so far, one for $154 and the second for $135. We put 20% down. The reason we didn’t put more down was because they were both fixer uppers, so we knew a lot of our extra cash would go to home improvements.

Fixer uppers are great to learn from and tailor your house to exactly how you’d like it (without feeling guilty about ripping out perfectly good stuff), but I don’t think they are always the best investment. I spent way more than I planned on our places.

I don’t know what I’d do in California. Housing is so expensive and even if you have the cash to pay off your house, then there’s still crazy tax bills.

5 Mo D.

We took possession of our $130K 2 bed/1 1/2 bath condo in Jan/04 and put down 25%; 25 yr. mortgage at 6.4% (mortgage is $712/month, about $130/month less than what we were paying in rent of a 1 bed/1 bath apt.). We do pay a rather hefty condo fee ($585/month), but it includes everything (24 hr. security, electric, water, and basic cable, though we upgraded to HD/Internet/Phone bundle a few years ago). Our property taxes are quite reasonable ($151/month); condo insurance runs us about $30/month. All in all, we’re thrilled with our place (excellent location and affordable for us), and it is my favourite 1202 sq.ft. on the planet. If we’d had been able to put more $ down, we would’ve, but we used an “early inhertance” to pay off our credit cards completely before we were pre-approved for a mortgage.

3 years ago, we were given a 5K gift from my Mom and we put it all towards the principal of the mortgage; that 5K knocked about 3 yrs. off the amortization… our plan is to put another 5K towards the mortgage again in 2011.

6 Christy

We bought a tiny house in 2001 for $76000. My mother gave me a 10% down payments, as a gift from my grandmother’s estate. We sold the house in 2005 and bought a larger house for $199000, using the equity in the first house (and some savings) to put 10% down again. We currently have a mortgage for 3.95% and only 12 years left on the amortization. (We started with 25 years 5 years ago!) I am hoping to pay it off by the time I am 40 – 7 years from now.

7 Kate

We put 80k down on our house, for a downpayment of 25%. We kept about 15k back for renovations, since we thought we’d be doing a lot of them right away. We did a few of them right away, and changed our minds about the timeline (we’ll have renters for a few years, and have decided we want to renovate AFTER they’ve destroyed the place). The rest of the money is sitting in a high-interest savings account for now.

8 Moneycone

We’ll put down 20%. Keeps our monthly low. Haven’t bought one yet, but that’s our plan!

9 lisa

well, I’m in the minority so far. we put 5% down on 319,900. We bought earlier than we were planning because the market was so fantastic and the interest rates were very low (our house was at 450,000 before the market crash). We’re currently snowballing our school loans, and those will be paid off in the next 1.5 years. After that the snowball will go towards the mortgage (an extra 1200/month) to put us around a 20 year mortgage. works for us! plus, 5% let us keep our hefty emergency fund, which I think is SO important when you have a mortgage. You have to have enough money to let you keep paying that mortgage should something happen!

10 Kevin

Even at low rates, 30 years of interest is CRAZY! We might lose the mortgage deduction which is a huge reason to have the mortgage. First home I put down 20% on a 15 year loan. We are staying in the current house until kids are grown and then selling and buying a small home for CASH. Last debt standing! Hindsight tells me I should of rented longer and put 50% down. There are so many hidden house costs that it isn’t the investment the world tells you it is. Renting your cost is fixed, and there are some nice alternatives besides apartments.

11 Sandy

Our first home (we were young and dumb) we financed 100% with a VA loan and had no pmi. We recently sold that home and are renting. We have to have 20% of our projected home value to get a construction lian. We’re busy saving our pennies for that- but hope we can do half the build ourselves and build some good sweat equity into our new home.

12 Kristen

It makes me cringe now to think of the decision we made back in 2005, but we were so desperate to get out of apartment living and there were plenty of banks ready to throw money at us….

We bought our $130k house with no money down. The 1st mortgage (30 yr fixed) covered 80% of the cost and the 2nd mortgage (a 5 year balloon (double yikes in hindsight)) covered the other 20%. Fortunately, we had no other debt, I had just started a great job (who provided us with 3% of the purchase cost to cover closing as an employee benefit) we paid off the 2nd mortgage within 2 years and now we have about 60% equity in our house.

I think we were very lucky to not encounter any job loss/problems in the early years, which would have been disastrous. We will definitely put down at least 20% on our next house (our grown up house). Already contributing monthly to our “Next House” ING account.

13 Lesley

I recently put a deposit down on a $150k condo that has yet to be built. I have about 15k to put towards it but I was only able to save that much by living with my parents and working full-time. The minimum I have to pay is 5% but if I had the resources I would put down as much as I could. My dream would be to do a cash purchase! I’ll probably put down 10% though.

14 Kevin @ Thousandaire.com

20% down, 15 year loan. That’s all you need to know.

15 Red

We plan on paying as much in cash as we can when we buy a home. Once I planted the idea in my husband’s head that we *could* pay cash with a little diligence, he became obsessed with the idea. Fortunately, we live in Tenn. where our dream house costs $120,000. It might take us a while to save up that much, but living without a mortgage might make it worth it!

16 Oldfangled

How we did it and how we WILL do it in the future are two very different things.
The first time, for the house we live in now, we were STOOPID. We put something like 10% down, and we borrowed the down payment from my parents. On top of that, the house needed a lot of repairs, so we ended up with more debt as we took care of those things. Oh, Lordy we were idiots. We’ve been living in the house for over nine years now, and we JUST got out of PMI.
We hope/plan to buy land and build a house someday. (This will be AFTER we get our current home paid off.) When we do that, we will save up and pay cash for the land, and build the house as we have the money, again paying cash all the way.

17 StackingCash

It’s nice to know I have something in common with your readers :) Debt is evil and must be defeated!

18 modernhamlet

Debt in this case doesn’t have to be evil though.

I’m all on board with 20% down. PMI is a harsh and completely unnecessary mistress. But I don’t really understand why you would put MORE than 20% down, unless you a) had a ton of money sitting around and b) couldn’t afford the payments at 20% down (in which case, should you really buy that much house?).

My thinking is this… the borrowing cost on a mortgage is HISTORICALLY CHEAP. Below 5%. If you can’t get a better return on your money (over the 20%) than that over the next 15-30 years , you’re doing something wrong. Also, the mortgage payment savings aren’t really all that major: ~$54/month per additional $10k. Having that $10k+ available for emergencies, a maintenance account, planned renovations, or other investments (in that order) seems like a better plan than throwing more $ at a cheap mortgage.

19 Kate

The motivations may be different based on location.

In Canada, we don’t usually have 30-year mortgages. We usually have 5-year mortgages, and amortize them out to 25 or 30 years.

That doesn’t sound like a HUGE difference, but it could be. It means that while we got our mortgage at a cheap rate this year, in five years, if rates spike, we could face much higher mortgage payments even though our balance will be smaller. The more we pay down now, when interest rates are cheap and more money can go to the principal, the smaller the balance will be in 5 years when we refinance and rates will likely be higher.

20 modernhamlet

Oh, certainly. If you can’t lock in the low interest, then the risk calculation changes dramatically.

Do they really not have fixed interest mortgages in Canada? I did not know that.

21 StackingCash

LOL! You must be one of those financial planners who tell people with paid off homes to take the equity out and put it in the stock market! Evil…

22 MyMoneyMess

We bought our house eight years ago with 100% financing. Not sure if I’d do it the same way again…

23 krystalatwork

My boyfriend and I are also trying to save up $100k for a down payment. I agree about putting 20% down. I feel like if you can’t afford to put 20% down for whatever reason, you probably either cannot afford to buy the house, or you’re rushing into it. Or maybe even both.

Unfortunately for me, I live in Vancouver where the average house costs close to $1 million. There is not one single house in Vancouver that is selling for less than $600k. So we are looking at townhomes, and even those range from $400-500k out far far far far in the suburbs. Chances are, the entire $100k we save will all go towards the 20% down payment.

24 Heidi

We bought our house in 2005 with 3% down, which was from my parents. Currently, we no longer live in that house, but it is underwater, so we can’t sell it either. Luckily, the house is in a college town in Indiana, so the house was cheap, and it is very easy to rent it. Rent has historically covered the mortgage, but taxes went up, so the mortgage is a little higher each month than rent, but we make it work with savings and such.

If I could go back, I never would have bought the house, but I was getting pressure from all sides, so I gave in. Never again! We currently rent a place in Maryland and everyone keeps trying to get me to buy because the market is so great. Hell no! I don’t want to be stuck with houses all around the country because I can’t sell before I move. Once we get a bit more settled, presumably after the next move to wherever my husband’s career takes us, I might be more willing to buy a house then. As to the down payment, well, I’d need to actually have money I could save towards it to have one. So, by that logic, I may never buy another house.

25 Jenna

Definitely aiming for 20% down. It makes sense where I live and seems pretty doable.

26 Crystal @ BFS

We bought our home when we had enough to put 20% down and have $10,000 left for padding. We ended up buying our home for $114,000, which was less than the $135,000-$150,000 range we planned for, so we had some extra padding (which is awesome since broken a/c’s the night you move in do happen…). :-) We were just lucky that it only cost $100 to fix. We have been extremely lucky since we haven’t had any major issues (knocking on wood right now) in the last 3 1/2 years.

27 retirebyforty

I put 20% down on my first place. 10k from my saving + 30k borrowed from parent. I was going to pull from 401k, but parents didn’t want me to do that. 30k has been paid back since.
I would buy a place that is just big enough for you guys and put 20% down. You can always add extra payments later.
Save the money to invest and when you need a bigger place, move and rent out the old place.

28 Brucebucks

Check out this article, they say you should put 100% down.

https://getcurrency.com/blog/100-percent-down-the-only-smart-way-to-buy-a-home

Great post! Still watching the video loop even as I type.

29 Jenn

We put down 10% on 300K and then paid a small fee to avoid PMI. We plan to live here a while so it made sense for us.

30 Amanda L Grossman

Hello!

How long do you think it will take you to save up the $100K? I have a goal to save that much, but I haven’t decided how long yet, so I was curious:).

We just purchased our home a little over a year ago. We had almost 20% down, but because we went with a VA loan, we did not have to pay a PMI (which is the only reason why I was okay with not quite 20% down). We’ll be making extra payments now!

31 Makky's Mom

1999 – bought our first house for $150K. 10 % down. Amortized balance of $135K over 25 years. 7 years later we sold for $255K. Walked away with about $110K in equity.
2006 – bought our second house for $340K. Put 85K down (25%). Amortized balance of $255K over 20 years. Since then we’ve increased our monthly payments and are on track to have the amortization decreased from 20 years to 15 1/2 years… that gets us a fully paid for house by spring of 2022… another 11 1/2 years to go…

32 Larry

Sez Ninja:
1) Price of the home
2) Interest rate on mortgage
3) How much renovating would we have to do
4) How much cash do we want to keep

You are forgetting one key factor, and that is inflation. We are not in an inflationary period right now, but historically inflation has averaged about 3% per year. Take your $100K and find its value 30 years ago (the term of a normal mortgage): it would have been $58,393.42. So if you keep saving to reach $100K (rather than buying sooner with a smaller down payment) and inflation takes off again, you may need $150K to buy the same house. Conversely, let’s say you put down $20K on a $58K condo in 1990, and you got a fixed monthly payment of $500 (or $6K per year), Your $6K in 1990 is equal to $10,275.13 in 2010, but you’re still paying just $6K, or in other words you’re paying with cheaper dollars.

33 Jeff

Larry I agree with you on the surface, but this is Ninja we’re talking about here.

1) Ninja will not need so much time that he will need 150K future dollars to equal 100K current dollars
2) High interest savings accounts have historically kept pace with inflation. I don’t think Ninja will be keeping 90K under his mattress.

For medium term goals I tend to ignore inflation because my savings vehicles will return about that much money. Sure I may lose some, but not as much as the interest I’d be paying by buying early.

Previous post:

Next post: