House down payment

[slakjaw]

I have been looking at a house recently, a few people have told me that the sellers would take me more seriously with a 20% down payment vs say like 5 or 10% This makes no sense to me. It seems to me that the sellers would only really be interested in the amount of the offer and if the potential buyer had bank approval or not. I do not know much about real estate so thought I would bring it to the OT group.

I did make an offer on the place that I like with a 20% down payment.

[HardDrive]

Its all about confidence in your ability to get credit and follow through on the deal. Just because a person is pre-approved for a certain amount does not mean they can get the loan. Thats the whole idea behind 'earnest money'. Keeping the seller in the deal and not looking at other offers. Our recent home purchase did get gummed up, and the first thing I did was send the sellers a healthy chunk of $ of additional earnest money to let them know we could follow through.

[slakjaw]

Thank you for explaining it!

[dan88911]

I think 20% gets you a better deal on the loan.

[Hugh R]

Agree with HD, BUT you can also get some pre-approved that are a little more locked in. As a seller I agree about a good buyer, but in the end, I just want to sell the house. As long as the buyer can get the loan, I really don't care how he finances it. 20% down is pretty good. Does 20% get you out of PMI these days?

[slakjaw]

Originally Posted by dan88911

I think 20% gets you a better deal on the loan.

this is why I saved my ass off for the past 8 years. I wanted to get a normal loan and not have to pay mortgage insurance

[KFC911]

Originally Posted by slakjaw

this is why I saved my ass off for the past 8 years. I wanted to get a normal loan and not have to pay mortgage insurance

What's done is done, and water under the bridge at this point so I hesitate to even post this, but....
If you had "run the numbers" earlier, I'd bet you'd have discovered that what you dropped in rent while saving up the remaining 6-20% would be significantly higher than what PMI would have cost you. For my first house, I paid 5% down (decent income, loan amount pre-approved) and paid the seller's full asking price (I wanted it, and was competing with others). Also took a fixed 30 year loan though I started out from the git-go paying extra principle (getting rid of PMI asap). Aggressively paid that whole loan off in 11 years, and never looked back....

[RANDY P]

20% down gives you a greater chance of approval, and the best possible rates for a purchase.

rjp

[KFC911]

Originally Posted by RANDY P

20% down gives you a greater chance of approval, and the best possible rates for a purchase.

rjp

I know you're in the "biz", but please help me understand. I was approved for borrowing xxx amount way back when. The % never entered into the equation at all. Though I absolutely despise banks, I did work for a mega-bank way back when so I also received an "insider's" rate at the time...how does it work from your perspective (in a nutshell)? Do you think "saving up to the 20% mark" (while paying rent) trumps the pretty minimal PMI and a slightly better loan rate? I don't...at least it sure didn't for me. Not arguing with a "pro"...I just know that one size doesn't fit all either....YMMV

ps: Not taking advantage of the historically low interest rates and rock bottom housing prices that begain to climb about one year ago would not make sense to me. Slak is still in a great position...he's gonna be just fine...I'm just asking?

[look 171]

There are all sort of programs for first time buyers. We just closed on a house we sold to a 30 something single man who had only 45,000 as down payment on a 670,000 home. It was a pocket sale and that he bagged us to sell it to him. My agent check him out and the loans people said he's solid and the loan will fund even though he's only putting little down. He wanted the house badly, so we decided to not listed on the MLS for a bidding war. We feel pretty good about giving the house to him without listing it on the open market. Plus, he paid top of the market value so we really can't refuse. I believe its a FHA loan. Randy any tips on that? How do they qualify for something like that? When I purchased my home, it was 20% down to insure the 100% positive on the funding of the loan and that there's no freaking PMI. I didn't want to be house poor and eat Cup-o-noodles for dinner.

[Porsche-O-Phile]

20% is onerous for a first-time buyer and I completely agree with Hugh as a seller; all I care is that the buyer gets his or her loan and buys the place. I could care less whether it's bank funds backing the check or their own cash backing the check I get at closing. A dollar is a dollar. Frankly I'd be more likely to sell to someone who I knew was putting down a little less as a first time buyer than someone bringing 75% cash to the table. In the former situation I'm really helping someone buy a home. In the latter situation I'm probably just selling to some house-flipper or investor.

As I said above, a dollar is a dollar and I'll sell to whomever, but given a choice I'd like to think I'm actually helping out a human being to realize their hopes and dreams, not a soulless entity that only cares about profits or doing a turn-and-burn.

When I bought my place it was ridiculous to put down 20%. I did the long-term projections and it was far more sensible to put down less and buy down the rate with what I had left to spend. IIRC you can get loans with as little as 3.5% down now. I put down 12.5% and after three years I'm just about ready to call for the appraisal to dump PMI. I haven't liked having to pay it for the last few years but it's a tax write-off anyway. It's not all that bad in that regard and even factoring that in, it was better to go that route than dump everything into making the 20% threshold and leaving myself spread thin and poor once I got the keys. No thanks. I bought a lower rate, got the same house and had a few dollars left in my pocket for contingencies once I moved in - thank God because in the first 2-3 months I had to add a water treatment system, replace a few locks, do some painting, etc. Came to around $3k that I wouldn't have had if I played the lender's game (20% down).

[KFC911]

P-O-P, that makes absolutely perfect $en$se to me also. Getting into your first home can totally change the way one operates if they've been renting and not used to all the potential unexpected expenseses that come along with ownership. Not wanting to be "put in a bind" is exactly why I opted for a 30 year fixed loan, knowing that I was capable of paying more (along the lines of the amount for a 15 yr at a slightly better rate), and salary increases would surely coming as I went along. Though I never "had" the unexpected hit me, if it had, I could have temporarily dropped my payment back down to the 30 year payoff amount. The loan % differences between 15/30 didn't weigh upon me as much as the fact that I never wanted to be strapped for cash if the $HTF. I never even considered a variable rate either (even better %s)...at these low rates, LOCK in for the long term. I've got a family member who just "overbought" in your neck of the woods, and stretched themselves thin to get the house they wanted. Despite my suggestion to "lock in a low rate" last summer....went with a ARM. Makes good "coin", but clueless when it comes to quantitative analysis imo, but I just keep my mouth shut after pointing it out "one" time. Everyone has to analyze their own particular situation imo...YMMV.

[MBAtarga]

Two houses ago, we included a pre-approval letter indicating we were qualified for the required loan amount for the house we were making an offer on.

The buyer had another buyer interested, with an offer for a similar price.

The buyer took our offer, and explained they were more confident in not having loan approval issues.

[cockerpunk]

Originally Posted by KC911

What's done is done, and water under the bridge at this point so I hesitate to even post this, but....
If you had "run the numbers" earlier, I'd bet you'd have discovered that what you dropped in rent while saving up the remaining 6-20% would be significantly higher than what PMI would have cost you. For my first house, I paid 5% down (decent income, loan amount pre-approved) and paid the seller's full asking price (I wanted it, and was competing with others). Also took a fixed 30 year loan though I started out from the git-go paying extra principle (getting rid of PMI asap). Aggressively paid that whole loan off in 11 years, and never looked back....

yeah this.

8 years is a long time to waste money on rent unless you have a compelling lifestyle or employment reason to keep renting instead of buy something.

[vash]

Good luck slak! Well done!


Sent via Jedi mind trick.

[Jim Richards]

Good luck with the purchase, slak!

[Rusty914s]

Few items:

1. What you put on the contract and what you do in actual life can be two different things. Can put 20% and only put down 3% but see item #4...this is a little more complicated but it's true.

2. 3% and 5% loans are back w/amazing terms.

3. If you're a first time borrower, if this is going to be your primary...check with your lender, rates will probably be more beneficial.

4. Get an actual pre-approval letter where lender goes through all of your financials and tells you exactly what you have in your hands, not the kind that you call the bank, answer a few questions, and they send you a letter.

5. ALWAYS, try to go directly to a bank to get a loan...you'll forgo fees that brokers often charge for their services. Not all banks are created equal. ALWAYS go to local banks and try 3 or 4...ask your broker what bank will look at your deal favorable.

6. If banks can't put it together, a creative BROKER may have access to a different cash source. Don't discount Brokers...once again, all not created equal. Ask your RE broker (also, not all created equal).

[look 171]

for #5, don't the bank or lending institution usually pay the broker's. I have never heard of borrower paying for their fees. I could be wrong.

[slakjaw]

Thanks guys. I do have an approval letter which I included with my offer. I don't have the the best credit. Not bad I guess but not much either. 2 credit cards is all I have ever had, they called it thin credit and my rate will be 4.75% is this a good rate for a first time buyer with little credit history?

[Z-man]

Originally Posted by Porsche-O-Phile

Frankly I'd be more likely to sell to someone who I knew was putting down a little less as a first time buyer than someone bringing 75% cash to the table. In the former situation I'm really helping someone buy a home. In the latter situation I'm probably just selling to some house-flipper or investor.

Interesting. I am looking to sell my home that I've lived in for over 20 years and move into a nicer, slightly more expensive home. I am free and clear on my home (paid off my mortgage 7 years ago), and am hoping to close on the sale of my current home before I purchase my new home. Thus, I would likely be putting 75% or more down on the home, so I can enjoy a relatively small monthly mortgage payment.

What I am doing financially is typically considered to be an 'old school' way of doing things. (Take on the smallest amount of a loan possible & pay off debt ASAP). Yet based on POP's comments, this type of scenario is looked upon negatively. I'm not flipping my home, nor am I an investor -- I just believe in minimizing my debt first and foremost.

Interesting how an old school way of thinking (pay off debt, minimize loan amount) can be confused with a new type of investing (flipping a house). From totally different sides of the financial spectrum, yet the action (putting 75% down) is similar.

-Z-man.

PS: I have already gone through the pre-approval process, and the numbers my mortgage person is giving me are far higher than would I would be comfortable taking on a loan for. So my max budget is lower than the mortgage person's allowable budget for me. As stated before, I don't want to be house-poor. I'd rather take a modest bump in my house than live in a mansion decorated with lawn furniture and have cupboards filled with Rahmen Noodles. Old school works best, IMHO.