I have about $500K in savings, no income (law student), and am buying a $270K house. Need down payment advice:

Question

It will be a 3 bedroom, so I will be renting out, getting $1000 a month from renters. How much should my down payment be, considering my savings situations and lack of income?

I misspoke when I said I had $500K in savings. Rather, almost 100% of that $500K is invested in various stocks, bonds, and mutual funds. I am earning interest on that money, but I am immediately reinvesting that money, so it is not there for me as disposable income. It looks like, given that it is a college town, prices might not appreciate as much as in other markets, so maybe paying cash would not be the best idea, especially based on your answers. Thanks for the help everyone- any other input?

Answer 1

Usually to make your payment and your interest rate as low as possible without paying cash for property, your down payment should be anywhere from 20-30% of the purchase price. If you do not have a mortgage broker, find one now before you even start looking at property. In the pre-qualification process they will tell you exactly what the minimum that you should put down depending on your credit history/ income status.

Answer 2

As an avid investor, my advice would be to take your money and find or hire someone that you trust who is very good with stocks and have them trade this for you (even someone mediocre can often beat 1000/ month rate of return or 2.4% yearly). A options trader or forex trader for hire can do very well in the market with the amount of money that you have. If they can make you even a meager 5% return per month (this is considered very low in my circles)then you can live very well off of 25k a month, buy your house with a loan to keep your cash free and clear and working for you. You will then have a very attractive income that will far exceed what most lawyers ever earn in their career. When you graduate from law school, you will have more than enough money to start your own law practice and hire other lawyers. This is what we call the fast track, while most people get stuck into a predictable financial pattern, you don't have to. Many less informed people would tie up a lot of money buying property that will appreciate by only so much per year and miss the opportunity to create a far greater source of wealth. You have the money i.e. your savings, but information will take you light years beyond where you trying to go, and in 2 to 3 years you will definitely thank yourself.

Answer 3

Buy the house outright then invest the rest (or just leave it in the bank for school) and live on the 1000$ a month the renter gives you. If you need more take it from you remainding 230000$ I don't see any way that you can lose because you will be finished law school and making an income in the next few years plus your house's value increases with time and you have more than enough to live on.

Buy the house cash, the seller might even lower the price :)

Answer 4

You pay 100% down. It's really a no-brainer.

Short answer: Pay 100% down. Put $30k in a money market or online savings account at 3.5% to 5%. Invest the remaining $200k in mutual funds and/or stocks at 8% to 12%.

Long answer:

Mathematically it makes sense to pay 20% down (avoiding the PMI) and finance the remaining $216k. Mathematically it makes sense to finance that $216k at 5.5% and invest $446k in the market at 8% to 12%. Mathematically that makes since. However, math is sometimes wrong in matters of personal finance.

There's a 4 letter word that makes the mathematical approach wrong. RISK.

A paid for house is a risk free investment that appreciates, just like good securities (stocks, mutual funds). Let me show you this and it will solidify my answer:

Scenario A: Take out the mortgage and invest the rest. You have a $216k mortgage which is a foreclosure risk. You have $446k invested in securities, which is a far bigger risk. The mortgage will cost you many thousands over the long term and about 90% of your money is in higher risk investments, or sitting in a bank collecting dust, being depreciated year after year by inflation.

Scenario B: Pay 100% down. Get a $30k emergency fund. Invest the rest in the market. You have a $270k investment (the house) which will grow in value year after year. No mortgage interest to negate that apprecition. No risk of ever being foreclosed on. You have $200k growing in securities as well. You have a $30k emergency fund growing in a money market account or online savings account at 3.5% to 5%.

Scenario B wins easily.

Answer 5

One of the best benefits of a mortgage, is that you can wright off interest. Since you don't have income, you will not be taking advantage of it.

If you pay for it in cash, you could probably negotiate a much better price on a purchase because there is no loan close and you can offer 3 day closing, plus collect $1,000 per month, which is about 5% return on $270K. Don't know what you opportunity cost will be, but that's what I would do.

Answer 6

Well, do at least 20% to avoid the PMI.
Without income (despite the savings and rent), you'll have a tough time getting the best rate on a loan. Because you can, consider buying the place for cash. If that's not an option, perhaps enough down so the rent covers it (would guess that to be around $140K down at current rates).

Answer 7

Most of the time if you have a 20% down payment you will save a lot of money long term. No mortgage insurance. No escrowing taxes at zero interest. Maybe a better rate.

Answer 8

get a loan that requires no income verification if u want to get a loan. put as much down as you can, if u have the cash to buy the house why not pay for it outright being that you will save paying $100,000+ in additional interest through a 30yr mortgage. u can negotitate a lower selling price for buying it straight with cash.

Answer 9

I'd say offer the house for 250K or less in cash (they'll probably fall over themselves for a low ball cash bid on a house right now) and then invest/save the rest as well as your income from your tenants.

Answer 10

I agree with Brandon. Not that many lenders have no income no job programs. But they can use monthly interest/dividend income to qualify you for a loan