I am planning to buy a house.?

Question

What is the right thing to do ? should I pay 20% down payment or maximum amount whatever I have ?

Answer 1

It depends on your objective and investment sense. There is no "right" thing to do. However financial wisdom would put your money to work where it can give you the greatest rate of return.

If your objectives are financial and you can not earn a better percentage on your money than the rate of interest on the house mortgage, then apply as much as you can to reducing the mortgage debt.

Answer 2

That is a great question and one that really, only you can answer. I've never bought a house (own 7 currently) where they didn't need a LITTLE bit of work. Whether it was new, kind of new or old, they all seemed to need a little bit of TLC, so I wouldn't zero out my bank account.

Keep in mind that once you get that loan - trying to get any of that money back will cost you (whether you refinance, or get a high interest rate home equity loan).

For my last home that I live in, we were very driven by the payment, so I put more than 20% down b/c this is what made the payment fit my budget. I also did not put 100% of all the cash I had down, just enough to get to a comfort level.

So, my final advise would be do what makes you the most comfortable. Interest rates are at historically low rates right now so getting as large a loan as possible is NOT the worst idea in the world. However, you WILL find the best rates if you put 20% down.

Best of luck.

Joe...

Answer 3

Your best bet is to consult with a financial advisor for your specific circumstances. The following is just my semi-educated rule of thumb. I am not a lending or mortgage expert, a CPA, or a financial expert. It's just based on my personal opinion and experience.



It depends on your financial situation, and where you are buying. My answer assumes you are in the US.

If you can put down 20% comfortably, do so. Keep in mind that you will need some money yet for inevitable expenses for moving, things you want to change in the house, purchases for it, any repairs you might need to make, etc.

If you can do only 10% down, you're probably OK to buy the house. You'll probably need to pay Private Mortgage Insurance - PMI - until you have 20% equity in the house. This is an additional amount that is part of your payment that protects the lender in case you default on the mortgage loan.

If you have only 5% to put down, I'd be very sure that you can afford the payments, and that the source of your funds (job, investments, etc) are secure. You're on the edge of not being able to afford the house.

If you can only get a 0% down mortgage, don't do it. If the housing market has a correction, you'll owe more than the house is worth, and be risking bankruptcy, in my opinion.

Answer 4

You definitely want money in the bank for back-up. If you put down 20%.. you won't have to pay any additional insurance to FHA or the banks over the life of the loan. So definitely put down at least 20%. Over the course of a 30 year loan, the Gov't. actually pays for about 1/3 of your house .. because of the tax deduction on the interest you have paid on the house for each year that you own the house. The best thing to do is to put down 20 to 25% on a 30 year loan. If you want to change it to a 15 year loan, just make one extra payment per year. (13 payments a year).. that will knock down the interest quickly and you will have it paid off more quickly. Good Luck ! :)

Answer 5

Just do what you can afford. Remember, the interest that you pay on you home loan is tax deductible, so paying too much down is not overly helpful. Also, there should be programs in your area if you are a first time home buyer. I purchased a home in 2004 and the city gave me 6,000 for my down payment. It was through the local first time homeowner program, but you have to qualify. I do not have to pay that back unless I sell or rent my house out within five years of closing. So, to answer your question, I would go lower on the down payment and invest the rest. Good luck.

Answer 6

If you plan to stay pay the most down possible yet still have enough for closing points. Buy as many closing points as you can to lower your mortgage rate that is tax deductible the first year so you get most of it back.

If you plan to stay get a fixed 15 or 30 year mortgage with lowest rate possible with the biggest down payment your comfy with, if your gonna leave within the next 5 years get a adjustable variable rate mortgage and put the least down possible. But please, be sure to GET A HOME INSPECTION, I can not stress that enough, some people think they are saving a few hundred dollars by skipping that and then they end up with 20K in foundation or insect problems.

Answer 7

I like MountainManInMT's response.

You should be able to get at least an 8% rate of return on investments. You should be able to get less than an 8% interest rate on your mortgage. Therefore, all else being equal, if you are using money to pay down your principle that would otherwise be invested, then you will be worse off by putting the money down.

Sometimes, all else is not equal, so a larger down payment does make sense, but not usually, even taking PMI into account.

Feel free to e-mail me on your specifics and I can run some numbers for you. (Please include "mortgage info" in the subject line for filtering)

Answer 8

If you plan to stay pay the most down possible yet still have enough for closing points. Buy as many closing points as you can to lower your mortgage rate that is tax deductible the first year so you get most of it back.

If you plan to stay get a fixed 15 or 30 year mortgage with lowest rate possible with the biggest down payment your comfy with, if your gonna leave within the next 5 years get a adjustable variable rate mortgage and put the least down possible. But please, be sure to GET A HOME INSPECTION, I can not stress that enough!!

Answer 9

I would put 20% down and consider using the extra cash to:

1. Buy down the interest rate on the loan (aka - pay points, which are tax deductible and will save you money over the long term).
2. Use the cash for home improvements and increase your property value
3. Invest your cash in other investments. Interest rates are around 6%. If you think you can do better than 6% (or whatever your mortgage rate is) in the stock-market, or some other investment, you'll make more money on your investment than you'll save in interest on your loan.

Personally- I'd do #3

Good luck!

Answer 10

It all depends on what you want to do, does the house need updates? Or anything done to it, that's including electric service, heating/air conditioning, room updates ex: kitchen. If there are updates to do now or things you would want to do in the future. then save some money. If not and you don't see anything needing done, then go ahead and put it all down. The less you owe is better, cause that means the sooner you pay it off, and the less interest your giving the "man" (bank) over time.