PMI do you put 20% down or do you put 3.5% down

[Sean Newcomb]

Which one is better if you can get the loan at 3.5% and use your savings to buy more deals do you guys put as little down or all that you can down?

[Anthony Gayden]

Originally posted by @Sean Newcomb:

Which one is better if you can get the loan at 3.5% and use your savings to buy more deals do you guys put as little down or all that you can down?

A little PMI does not scare me. I like using conventional mortgages with 5% down when I plan on living in the property. The amount of time it will take me to save a 20% down payment even on a moderately priced property is much greater than the amount of time it takes me to save 5%.

Just as an example, I am in the process of buying a primary residence for $265,000. I am putting 5% down and with closing costs I have to come up with about $20,000 out of pocket. For the same property if I were to put 20% down it would require a little less than $60,000 out of pocket with closing costs. Even with my relatively high rate of savings, it would take me a couple of years to save $60,000 for a down payment.

At that point I would likely be facing higher interest rates and price appreciation causing the value of that home to be greater than it's current value. Basically it is very likely that I won't be able to buy the same home in a couple of years for today's prices. That means that I will likely need more than $60,000 if I wait until I have a 20% down payment.

On the other hand I will get two years of debt pay down, tax breaks, and appreciation if I buy now with PMI. At $150/month, PMI seems like a good deal in my situation.