10% or 20% down on first home ?

[Luna D.]

Hi Everyone, 

I am trying to figure out what I should do in this situation: I have  good credit and would be able to make 20% down on my first deal. But I am struggle to see if I should down more or less (10% or 20%) on it. I am also getting 10k seller credit from seller, and could either use that one to buy down interest rate or just pay off the closing cost. the lender is giving me few option one with higher fund at closing and lower interest rate, and one with lower fund at closing with higher interest rate (about 0.2% difference) 

With the high interest rate right now, do you think it is better to do higher interest rate, and refinance later or should I just try to get as low as interest rate as possible and do not worry about refinance ? 

Also,  my realtor is recommend down more so I can avoid a lot of fees, but from what I read, it is better to down as low as possible so we can get better Return on Investment,.... is that true ? what would make more sense in the current market right now ? 

Thank you for your advice!

[Tim Ryan]

Luna,

This sounds like you are buying a home as your primary residence. Or is this your first investment rental property?  It's hard to answer without knowing this.

[Luna D.]

Quote from @Tim Ryan:

Luna,

This sounds like you are buying a home as your primary residence. Or is this your first investment rental property?  It's hard to answer without knowing this.

Hi Tim

 Yes I am buying it as primary residence, and plan to share room on first year, and rent out entire house on the second year !

[Tim Ryan]

cool Luna,  When you are ready to buy rental properties for investment, we will be here for you with your questions. 

[Nathan Gesner]

Quote from @Luna D.:

Generally, you put down the minimum amount needed to make the investment work for your goals and to ensure you are not at risk of over-leveraging. If 10% is sufficient, do that and keep the remaining money as a reserve or for your next investment.

[Theresa Harris]

Do the math and see what you'd save if you put 20% down (ie mortgage insurance) and if you put 10% down; and what your payments would look like.  For the 10% down option also factor in what you'd make if you invested the other 10% and had higher mortgage payments.  Also do you need that other 10% for anything (ie home renos, saving for another home)?

For me, I'd do 20% down because where I am you'd pay more that the 10% in mortgage insurance.

[Jon Puente]

Hey Luna,

I would not buy down your interest rate permanently.  Rates are set to come down in the next 12 months and it would be a waste to spend thousands on buying points when you can refi later. 

As far as the down payment %, that is totally up to you. 20% would avoid PMI, but even if you did 10% with good credit, PMI isn't that much (probably less than $100/month). If you want to use the extra money for another investment, then do 10% down. But if you have no use for the money, then do 20%.

Also think about items you can upgrade or repair in the house to force appreciation, so that when you refinance down the road, you have a better LTV (equity) position and you can get even better rates at 75% or 70% LTV.

Great Question!

[Alecia Loveless]

@Luna D. For me the big question is what number makes your property work better in year 2 when you move out?

The second question involves whether you want to avoid PMI by paying the 20%.

Another thought is you have more control with 20% because you can choose the insurance, and stay in control of your money longer by paying your own taxes. (For instance I put my property tax money in a HYSA and earn 5% interest on it until it’s due. I know this isn’t a huge amount but every bit helps.