15% with PMI vs 20% without

[David Rutledge]

Good afternoon,

I am a beginner investor and I have been researching and sourcing these forums every step of the way. I recently put an offer on my first property and it was accepted. I am now in the process of getting the house appraised etc with my lender.

I was hoping to get some advice from other experienced investors on what interest rate I should go with.

My lender is offering three options 15%, 20% or 25% down. I have the available capital to put down any of the above but I do plan to obtain additional properties over the next 12 months so having that extra cash available will obviously be very helpful.

With 15% I will need mortgage insurance but the rate stays the same as if I put down 20%. It will cost me about 3000 total before my mortgage hits the mark where I no longer need the PMI than if I put the 20%. If I wanted to put 20% I would need to put down an extra 8000 so I am really debating whether I want to save that 3000 and have that capital for a potential additional purchase or do I want to save the 3000 and just put the 20% down.

25% is not really an option as I will be tying up too much money.

As I mentioned I am new to all this and although I am leaning toward the 15% option I would love to hear some opinions from investors or people who may have been faced with this decision.

Any advice you could provide to someone who is just starting out and wants to build their real estate profile while still saving the most money would be greatly appreciated.

Thanks so much for your time.

David

[Matthew A.]

@David Rutledge

I'm a numbers guy, so I'm sorry if I over analyze this for you :)

Lets say you have a $100,000 house. Obviously 20% down is $80,000 and 15% is $85,000

30 year term 3.5% interest

$85,000 is $382 a month + $31 roughly for PMI until 80% LTV right?

$80,000 is $359 a month, no PMI.

Roughly 36 months of PMI until you get to 80% LTV and the additional $23 a month in payments on your loan. That's $1,944 more you spent for 36 months, then to spend the remainder of $3,056 it will take another 132 months.

Meaning, you won't see your $5,000 extra down payment amount work for you until 168 months or 14 years. Then after 14 years you start to save $23 dollars a month on your loan. Saving you a grand total over 30 years of $4,416 or $12.26 a month over 360 months.

In order to make up for the $12.26 a month you would save by putting an extra $5,000, you would need to make (besides the $12.26) in percent terms, 0.245% or 2.94% yearly. 

FOR ME PERSONALLY, why not put that in the stock market or towards something else?

I know I could easily make $12.26 or 0.245% a month with $5,000 :).

Hope I said everything right and didn't confuse anyone. That's how my brain works. I know it's tiring. 

Thanks,

Matt

@David Rutledge