Ben Teal, Home Buyer in Dallas, TX

Why would you put 20% down in a declining market?

Asked by Ben Teal, Dallas, TX Thu Jan 22, 2009

Not to ask rhetorical questions, but I assume that it has something to do with how bad one wants to buy a house. I'm aware of the options for a lower down payment (FHA), however, why pony up 20% only for it to evaporate into thin air?

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Mr. Teal
First of all, buying in a declining market tends to make sense only if you are planning on a long term investment, as oppossed to a quick turn-around. Any amount that 'evaporates' will come back, and then some. History has repeatedly shown that.

With todays low home prices, buying is a great option to renting, usually resulting in a lower monthly payment than the rent you are paying. So, would you want to buy in this declining market? Absolutely!

But, as you mentioned, you can do that with 3.5% down. So, why would you put 20% down? It will save you from having to pay PMI, as previously mentioned. PMI is mortgage insurance that you the borrower must pay (monthly added on to your payment) when you put down less than 20%. Other than that it really depends on what you would otherwise be doing with that money. If it would be sittting in the bank returning you a few percent interest, it would be better putting it down, which will save you the 5% you will be paying to borrow to buy.

Good Luck to you,
1 vote Thank Flag Link Fri Jan 23, 2009
Hi Teal:

All of the answers are correct also usually if you put 20% down you should also have a better interest rate. When a lender is lending on a home he looks at the buyer's down payment 20% means no PMI and means you are a better buyer, thus you qualify for a better interest rates. The other ingredient for the better interest rate is provable income, lower debt ratio, high fico scores and purchasing a primary principal residence.

If you are planning on staying in your home for at least 5 years then you should not be throwing away money. If you are planning on moving in a short period, then you really don't want to purchase unless you would be able to rent your home or your get an extremely good deal. (there are good deals out there). Buying a home in reality is a long term investment, not a short term turn around. There are costs when you buy and sell a home that will take time to recuperate.

The amount that you put down really doesn't have to do with the market it has to do with what you want to buy and what you can afford.

Have a great day!
Diana 909-945-5763
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1 vote Thank Flag Link Thu Jan 22, 2009
Interesting question.
1. No Mortgage Insurance
2. Easier to qualify
3. Easier to market in case you need to sell.

Why Not:
1. You don't have the down payment
2. You don't want to drain savings/401
3. Your planning on forfeiting the house and don't want to lose your down payment (never recommended)

If you need some help checking out rates check out my website. Live rates 24/7 with no personal information needed

0 votes Thank Flag Link Thu Jan 22, 2009
Mr. Teal,

When looking at your offer from a seller's stand point, it always looks better that a buyer is putting down more money. It shows how committed they are to purchasing the house versus someone that is only willing to put several thousand just to get a home.

Yes, you are right about your payments being lower as well. I would say that real estate is still one of the safer places to make investments today. Real estate always makes a comeback at some point. So, I would not say your money would evaporate into thin air unless you plan on letting your house go to foreclosure. If that is the case, then you should not even think of getting into a house. Your money invested in real estate will make money at some point. The market is bad right now, but I would invest in home rather than the stock market right now!

Good luck!

Joan Patterson, B.A., A.S.P., G.R.I., Realtor
Keller Williams Realty
8250 White Oak Avenue, Ste 102
Rancho Cucamonga, CA 91730
0 votes Thank Flag Link Thu Jan 22, 2009
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