What are the advantages of no money down versus 20% down in a home purchase.?

Question

I know that you build equity faster with money down.
With no money down, your assets are more liquid.
Anymore pros or cons.

Answer 1

Consider this: monthly principal and interest payments at 6% on $100,000 is $600 for 30 years, monthly principal and interest payments on $120,000 at 6% for 30 years is $719.50.

719.50 - 600 x 30yr x 12 payments per year = $43,020.

If you save the $20,000 for 30 years, the interest earned at 6% would be $40,000 after compounding.
After taxes on the interest, you would have $20,000 + $32,000 = $52,000.

Of the extra $43,000 in interest payments, you might get a tax savings of $4,000, giving a net cost to you of $39,000.

So you earn $32,000 but you spend $39,000 to do it. Plus, you would have to buy mortgage insurance until you get up to 20% equity.

You cannot get ahead by paying mortgage interest. You don't get anything for it.

Answer 2

I'm surprised nobody gave this answer -

Lat's say it's a $100,000 house (for ease of numbers).

You have $25,000 savings.

Option 1 - Empty your savings and pay $5,000 closing expenses and $20,000 down payment. Lower payment, no PMI.

Option 2 - Get a 100% or an 80/20 loan and spend $5,000 in closing costs. Larger payment. Maybe PMI (100%), maybe not (80/20).

Let's say you lose your job. Under option 1, you could sell the house quickly (then have nowhere to live) or stay there and be foreclosed upon in 5 or 6 months. Under option 2, you continue making payments on the house and live off of savings and a little part time job you pick up in the meantime.

BTW - You don't build equity faster with money down, it's just that your $20,000 is tied up in the house instead of being a liquid asset.

Answer 3

Without 20% down you pay PMI (Private Mortgage Insurance), which can be costly. Basically add about $100 to your mortgage payment that does not go towards your mortgage and does not give a tax break. You are better off putting 20% down or doing an 80% 10% 10%.
Which is putting 10% down and doing a small 2nd for the other 10%. This avoids the PMI and may be eligible for a tax deduction.

Answer 4

You can do an 80%/20% (2 loans) for 100% financing, thus eliminating mortgage insurance. BUT, putting 20% down if you can swing it lowers your interest rate by lowering your CLTV (combinined loan to value) and you already are liable for less payment, already have equity and it's overall a better deal for you if you want to sell or refinance in the near or ever future. Additionally, if you were to put 20% down you don't have to pay MI. You can also, do 10% down and an 80% first lien and 10% 2nd lien, still avoiding the MI.

Answer 5

We just bought our first house. We put 3% down for an fha loan. When you put less than 20% down you have to pay insurance to the bank because you are what they call a risky loan. Once you pay enough and reach 20% of what you owe, you stop paying the insurance. That includes any improvements you do to the house. It's also risky to put less than 20% down if you don't plan on staying in the house very long. If you sold it right away you might not make enough to make your money back plus all the costs. You will also have closing costs that you will have to pay up front that depend on what kind of loan you get and how much you put down.

Answer 6

by putting down 20% your monthly payments will be alot lower. There is also a special kind of mortgage insurance you will have to purchase if you put down less than 20%

Answer 7

the more money you put down, the lower your mortgage payment will be. you may be able to pay off your house faster if you apply the "extra" money towards your payment

Answer 8

the only advantage is that you have a house without paying anything!