irvinehomeowner
Well-known member
I've actually wanted to talk about this for quite a while and I guess since this is a new era, this will probably be a good time.
I know that from a lender/seller POV, the more down the better... less chance of foreclosure, skin in the game, higher chance of closing escrow etc etc.
But as a buyer, with interest rates so low, is it really the best move financially?
Considering how uncertain the market is and the fact that there may be little appreciation in the next 5-10 years and that most people don't stay in a home that long... wouldn't you want to minimize that cash out risk?
When I bought my first home in the early 90s, I had enough to put down 20% (homes were much cheaper then) but chose to put down only 5% because I didn't want to commit that much cash to my first home (which I knew would be transitional). I could easily afford the payments and knowing I still had money in the bank seemed to a safer bet for me (if you recall the early 90s was the last time the market bottomed). A few years later, I sold it and ended up with enough to put 20% on the next house that was double the price (yay RE cycles!).
But considering we are approaching (or maybe not even near) the bottom of this latest cycle, why would I want to commit 20%? In addition, 20% now is a lot more than it was back then and if my DTI can support say a 95% LTV home, why don't I just put down 5%?
I guess what I'm saying is if I can afford a $475k loan easily, wouldn't it be better to buy a $500k house and put $25k down instead of putting $100k down? It's not like I am actually going to pay all that interest since I will most likely move within 5-10 years.
(and yes, I know there is PMI and stuff but humor me here)
I know that from a lender/seller POV, the more down the better... less chance of foreclosure, skin in the game, higher chance of closing escrow etc etc.
But as a buyer, with interest rates so low, is it really the best move financially?
Considering how uncertain the market is and the fact that there may be little appreciation in the next 5-10 years and that most people don't stay in a home that long... wouldn't you want to minimize that cash out risk?
When I bought my first home in the early 90s, I had enough to put down 20% (homes were much cheaper then) but chose to put down only 5% because I didn't want to commit that much cash to my first home (which I knew would be transitional). I could easily afford the payments and knowing I still had money in the bank seemed to a safer bet for me (if you recall the early 90s was the last time the market bottomed). A few years later, I sold it and ended up with enough to put 20% on the next house that was double the price (yay RE cycles!).
But considering we are approaching (or maybe not even near) the bottom of this latest cycle, why would I want to commit 20%? In addition, 20% now is a lot more than it was back then and if my DTI can support say a 95% LTV home, why don't I just put down 5%?
I guess what I'm saying is if I can afford a $475k loan easily, wouldn't it be better to buy a $500k house and put $25k down instead of putting $100k down? It's not like I am actually going to pay all that interest since I will most likely move within 5-10 years.
(and yes, I know there is PMI and stuff but humor me here)