$100K down payment, much lower mortgage?

Question

Hi. As stated in a previous question, I'm 20 going on 21 and currently debt free. My car has been paid for, I have no kids/no bills. I make about $36,000/year and I'm interested in purchasing a home within the next few years or at least before I'm 30. Since homes are such a major investment, I'd like to lower my mortgage or completely pay it off as quickly as possible so my other expenses won't be as much of a worry. So, I plan on saving $100,000 for down payment while staying with my parents. I already have around $20K saved up.

I figure if I put $100K down on a $160K home, I could get a loan for $60K resulting in a much lower mortgage payment. Is it really as cut and dry as I am making it out to be or is there more to this? Are there drawbacks/benefits from a large down payment? I've talked to my parents about this, but I'd like to get other opinions.

Also, what are some ways I can increase/invest the money that I'm saving, aside from interest gained in bank account?

To address Gregorio, you must have mistaken me for someone else. Like I said in my first question (different account, same name) I am indeed 20.

I know that the market is unpredictable, so when the time comes that I reach my goal, I'll have to adjust accordingly. However, for the time being, I must try and prepare myself with the knowledge I do have of the current market.

I receive a separate income, an allowance of sorts, from the parents, so direct depositing my check from work isn't an issue. I don't even see the money. It just goes straight into the bank. Whether to invest it all or the majority of it at one time is my concern. My mom and dad actually purchased a new home last year, so I've been taking in their advice as well. Their new house costs way more than my $160k target, so I want to avoid downsizing as much as I can when I do decide to purchase a home.

Well, there's a lot of great information here. Total Money Makeover looks like a beneficial read. Thanks.

Answer 1

Putting a lot of money down on a house. Well I am not in favor of that move at all. Put about 10%-20% down and enjoy the tax advantages as well as the leverage to purchase your house.

Look at it like this. $100,000 in your bank account. 20% down on your house. Now you have $80,000 down to invest in any other investment you desire. 80K is drawing interest at 5.5% for 30 years. You are also paying down the loan amount on your home during the same 30 year period with the tax deductions from the interest on your home loan.

I know that you will be adding to the 80K each month thus making your overall savings a lot more profitable.

Another way $100,00o in your bank account $100,000 down on your home. No money left in the bank for anything. No interest on $0 balance in the bank. You have a lower mortgage payment and can only get the tax deduction on the loan amount.

By the time you save your $100,000 what do you think the cost of a house will be by that time. Houses do go up in value. You can not purchase a house in 2007 for the same price your father purchased his house for.

Now you will have some naysayers that say this is a down maket so don't buy now.

When your father purchased his home at what ever price he bought it I am sure that there were a few years that the value stagnated and did not go up, but overall and for centries the value of property has increased. It will again. You might ask him what he paid for his house and when did he purchase it?

About investing there are many many many investment avenues to choose from. I am gonna try and list a few though not necessarily in any order.

#1. Real Estate (2nd trust deeds)

#2 Real Estate investment trust (REITS) (Raw land, shopping centers and commercial real estate, Apartment buildings and residental properties as well as many others.

#3 Stock Market, bonds and currency

Now as with all things each has draw backs and advantages, you have to select the ones that make you feel the most comfortable doing with your money. That is important because it is YOUR MONEY.

Many avenues of investments have brokers that you will need to assist you in doing certain investments.

You should look in your local telephone book, call each, set up an appointment with each, sit down and have a conversation with each. You might want to set up more than one interview with more than one broker in each category.

The reason being is that you might not have anything in common with one broker or your personality clash.

Listen intentently to what each tell you about their product, after which if your parents, family members or friends know any of these brokers you might get a referral from them also.

I personally like real estate investments, because of the higher yield of interest. The key is you must find a very good active mortgage broker or banker.

Check with your tax consultant about any income tax deductions available to you.

I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 2

A rule of thumb is 2% of the balance. If you pay 40K of a 100K loan, the balance is approximately 60K. 60K * 2% would be about $300.00 per month. She would also have to take into consideration any Mortgage Insurance and escrow (Insurance/tax) fees. This could bring the monthly total up another $150-200 depending on the actual value of the property, etc. The interest rate will be lower with a good credit score and the interest rate will definately make a difference on the payment. With all the variables, it is best to use a free mortgage calculator such as offered at a Credit Union to help make a determination. Navy fed has some good tools. ---I would NOT suggest a mortgage broker before doing your own research.

Answer 3

You really sound like you have it together, which is amazing and great! I agree with the previous poster about reading "Total Money Makeover" by Dave Ramsey. And yes, if you can save $100K for a down payment that would be fabulous. There is no sense in buying a house right now because maybe prices will go up in a couple of years. Save all you can for a few years and then buy a house on a mortgage that is no more than 15 years.

Answer 4

Use $10k to put down on a $100k house (or condo). Keep the other $10k in the bank for emergencies. Buy it now while home prices are low, b/c by the time you save up $100k home prices will be high again!

Congrats on being such a responsible 20 year old and good luck in your new home!

p.s. don't forget to factor in the cost of property taxes and insurance when you figure out your monthly payment - if you talk to your bank they can help you figure out what sort of loan you could get.

Answer 5

May i suggest a reading of 'total money makeover' d.ramsey.
save ur money and spend some on good books about home ownership.
u have a lot of variables that will change ur plans. the biggest one is marriage.
visit daveramsey.com to get a grasp on the hard lessons others have learned b4 u get to do so.