Home Buying in Dublin>Question Details

Rsk, Home Buyer in Dublin, CA

Pros-cons of making a down payment

Asked by Rsk, Dublin, CA Wed Dec 29, 2010

What are the pros-cons of making a down payment when we buy a home?

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There a number of scenarios that will dictate whether a down payment is advisable. An FHA backed loan will require 3.5% down. VA does not require a down payment but your monthly payment will depend on whether you excercise this option or put something down. Conventional loans now require 10% down and investment property is generally 20% down. Bear in mind that cash is king. If you think you might need the money later, put less down, although that will make your monthly payment a bit higher. Homes are fixed assets and much harder to get money out of on short notice, unlike a bank account or wherever else you may have your money. Great question. Thank you. Bill
1 vote Thank Flag Link Wed Dec 29, 2010
On the positive side, when making a down payment you are lowering the monthly payment you have to make each month. On the other hand if a lender or seller will let you move in without a downpayment, you could always use the extra cash to buy new appliances or to put in an emergency fund.
1 vote Thank Flag Link Wed Dec 29, 2010
Mostly because the sellers require a down payment. I have never done a deal where some kind of down payment was not required. Maybe if you gave the reasons why you don't want to make a down payment, someone could address your concerns on this forum,
1 vote Thank Flag Link Wed Dec 29, 2010
If it's a privately owned home (not a short sale or a foreclosure), you are showing the owner that you are serious about purchasing the home and that your intentions are to proceed to closing. This will work to your advantage as opposed to an offer that is submitted with no money down.
For a short sale, a deposit would be required once the 3rd+ party lender approves the short sale.
For a foreclosure, you will be required to place a down payment within a certain amount of business days after the bank accepts your offer.
Web Reference: http://www.321property.com
1 vote Thank Flag Link Wed Dec 29, 2010
Rsk,

The amount of down payment IN THIS MARKET will affect buyer costs. If a buyer is a saver but has limited income, greater down payment means lower overall costs and this may be the advisable plan for that buyer. If a buyer has big income he/she may wish to keep their cash for other uses. Either way the amount of down payment will affect morgage amount and in the end, quality of life and if lifestyle will dictate the proper path mroeso that anything else. The algebra can be handled by your mortgage broker when you find your dream home.
Web Reference: http://bob2sell.com
0 votes Thank Flag Link Wed Dec 29, 2010
Do you actually have a choice? I ask because the reality is 99% of borrowers have a set amount of cash they can part with and it's extremely rare they have more than enough.

But that didn't answer your question.

Pro - larger down payment gets the loan approved at the best terms available, in turn providing the lowest monthly payment. There's a particularly large break point at 20% down because just crossing that threshold has an exponential cost increase (assuming less than 20% down). If the loan is 80.1% of the home's value then you'll have mortgage insurance and a higher interest rate. Better to put down that .1% extra if you've got it.

Con - it's tough to get your cash back out of a home these days. It used to be you could pop down to the Golden 1 Credit union or Union Bank of CA and easily tap into a home equity loan. Not anymore. It is very difficult to convert equity to cash these days.
0 votes Thank Flag Link Wed Dec 29, 2010
Pros and cons from whose point of view?

PROS
Obviously from your point of view, no or low down payments sounds very appealing especially if you have little or no money to put down. However, you would face the highest monthly payments, depending on your loan and interest rate.

Another benefit to you is that you have very low risk in terms of lost equity should you need to sell sooner than you expect and the market hasn't rebounded enough for you to recover your down payment and selling costs.

CONS
Submitting an offer without an initial deposit and down payment makes for a very weak offer. Most sellers will question your seriousness and your ability to close escrow if you don't have some kind of down payment and initial deposit with your offer. Without a down payment, your offer may not merit a glance.
0 votes Thank Flag Link Wed Dec 29, 2010
Rsk,

Don't really understand the question as in today's lending environment there is no such thing as zero down any longer. If you're asking whether to go FHA (which requires significantly less down) or conventional, assuming you can qualify for both, it's a matter of cash in the bank vs larger mortgage payment. Closing costs for FHA loans are also significantly higher.

Generally speaking you are looking at the following for down payments:

FHA - 3.5%
Conventional - 15% - 20% (there were some 10% down programs but not sure if still available)
1-4 unit bldgs - 20% - 25% down
5+ unit bldgs - depends upon the rent rolls but generally speaking 35% - 50% down.

talk with some reputable lenders and they can give you the latest options

Best Regards,

Lance King/Owner-Managing Broker
lance@fixedrateproperties.com
415.722.5549
DRE# 01384425
0 votes Thank Flag Link Wed Dec 29, 2010
Do you mean ‘deposit’ or ‘down payment’?

If you mean ‘down payment’, you cannot get a loan (except VA) with out a down payment of some kind. HomePath is as low as 3%, FHA starts at 3.5%, Conventional can start at 5% with PMI. Ideally, the larger the down payment, the better the loan, the lower the rate, the lower your monthly payment.

If you mean ‘good faith deposit’,

Pros: They'll look at your offer.

Every offer has to be submitted with a deposit of some kind. I tell my sellers not to accept anything less than 1% down. If it’s a multiple offer situation, we ask for a minimum of 2%, usually 3%.

Cons: No deposit, no offer.
.
0 votes Thank Flag Link Wed Dec 29, 2010
Hi Rsk,
Pros: Buying a home with absolutely no down payment is probably the best thing one can imagine. It is like renting a place of your choice. You can make improvements in the house.
Cons:You need to have an excellent credit. Ususally these programs charge higher points and if that is added to your loan amount, actual loan amount is bigger than house payment. These programs may charge higher interest rates too, so your house payments will be higher.

Please, check with your lender about the rates, points, duration and type of loan before making a decision.
Web Reference: http://www.Judysharma.com
0 votes Thank Flag Link Wed Dec 29, 2010
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