Is it worth putting 10% down on a property?

Asked by Jill, 01453 Tue Sep 7, 2010

I'm a first time home buyer so it's unlikely the home I'm offering on will be a "forever" home. If I sell in 5 yrs will I make back the extra money I invested? How do you deterimine if it's worth putting the extra cash down? Thanks, Jill

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Michael Novia, , San Francisco, CA
Fri Sep 10, 2010
Hi Jill,

This is a great question and one that most buyers are asking nowadays. It's obviously impossible for any of us to know where home prices will be 5 years from now, but you can do a few things to hedge your bet a little. First and foremost, make sure you are buying in a great location. If the neighborhood(s) you are looking in are full of "REO's" or in "transition" you may be better off looking in a more established neighborhood. Five years is not a very long time in "real estate years". Is the home you are looking at in need of repairs? If so, do you have the money to make them? Also, take a look at how long the property has been for sale. Has it been on the market 2 weeks or 6 months? If it's been on for a while try to determine why. Was it simply over priced or are there other issues - why it hasn't not sold?

As far as the down payment percentage. Take a look at the loan terms. If you put less down will you get penalized with a higher rate, mortgage insurance, higher upfront costs? My suggestion is to way the pros and cons of each and put down as little as you can.

Best of luck to you!
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Glen Mitchell, Agent, Half Moon Bay, CA
Tue Sep 7, 2010
Jill, It sounds like you want to know if paying points is a good idea and if if more money down would also be an option. At the same time you say you understand comparing loans, so question may not be clear. It is easy enough to calculate a break even period and compare different rates, different down payments etc. Your lender should also be able to lay these out for you too. On top of comparing just the rates you will have to also make some educated guesses on how you would use the extra cash and what return you would get on that money if it wasnt invested in a house. Just for fun if you want to assume prices will be higher your overall return will also be more on less money down, but you again have to compare it to your other options and see where any break even time periods might be if you can borrow more money at a lower rate. Email me all the numbers and choices if you want and I will help you break them down.

Glen Mitchell
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bobby sappin…, Agent, Sperry, OK
Tue Sep 7, 2010
First there is no way toinsue that you wl make a profitt or even break even on your home if you sell within 5 years. If you really are not planning on staying there longer, I would just put the min. required down if that does not put your interst rates too high, Most of the time, on a home loan the first 5 yearsare mosly interst only: I would recommend you get a few ammortization schedules done for you at various prices with the different downs. You will be able to see the principal and the interest that is applied each month. But keep in mind, the market is going up and down every day. Find a reputable realtor and lender, both who will work for your nterst and perhaps you can get it below todays market value. Ifyou not staying over 5 years, I would not recomend buying the rate down either.
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Lance King, Agent, San Francisco, CA
Tue Sep 7, 2010

No one can tell you on any property that if you buy it now at $__________ you will make money or how much you'll make. Anyone who tells you that is either lying or misinformed.

That said, I don't really understand your question. If, for example, you are buying a $500K property, whether you put $50K or $100K down isn't going to affect the amount when you sell unless you walk away from the property without selling.

You need to speak to both a reputable lender and an experienced Broker who is ethical enough to tell you if buying now doesn't make sense. We tell clients that all the time so we'd be happy to sit down with you and evaluate your situation.

Best Regards,

Lance King/Owner-Managing Broker
DRE# 01384425
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ruby smith, Agent, San Francisco, CA
Tue Sep 7, 2010
I wish I could predict for you what will happen in five years, but alas, I cannot. If I could, I'm sure, I would have lines of prspective buyers lined up for miles. People buy realestate for a variety of reasons. One is they are fed-up with renting and landlords. When you own you have a peace of mind. Another reason is that they found a property in a neighborhood that they feel will give them peace and enjoyment. San Francisco has not lost very much of value year over year as other localities in the bay area and even the country. I've attached a link to a page that discusses value in SF and YOY averages . I could water down the data and spit it back out but I think it best for you to experience it first hand. I would like to sit down with you over coffee and discuss your querry and the data
San Francisco will always be a victim of short supply vs demand. People from all over the world would like to own here.
Thank you ,
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Bev Smucha, Agent, San Francisco, CA
Tue Sep 7, 2010
You need to talk with a real estate professional, lender or mortgage broker, and evaluate your monthly payments,and costs. Lenders require reserves. Normally, the more money you put down, the less costs. That includes upfront cost, and monthly payments. If you can avoid paying monthly PMI, you should. I understand you are trying to figure out the return on your investment; that depends on your equity position when you decide to sell.

Bev Smucha
Soval Realty
Office: 415-565-4498
Direct: 415-585-0343
Cell: 415-699-0941
0 votes
Tue Sep 7, 2010
Jill, personally during these uncertain economic times, I'd be more inclined to keep the money and instead invest it somewhere else ( with rates being so low, you can actually find an investment that will get you a better return).

From the loan standpoint, if you do a conventional loan with 10% down, you will be "adjusted" to death ( rates adjuster apply for loan above 80% and scores below 720), so your rate won't be as good plus you'll pay MI. Instead if you could go with FHA or USDA ( if eligible), better rates, ( USDA has no MI) and you get to put less down.

Now if you can put 20% down, then it's a different story, because now you're in a different ball game: no MI, lowest rates. Now it makes sense.

But if comparing 10% down conventional to 3.5% down FHA, FHA makes more sense.

Good Luck!

Elena Ollick
Amerivest Realty
Faith Home Loans
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Jill, Home Buyer, 01453
Tue Sep 7, 2010
Hi Guys,

Thanks for your input. I have the cash, that's not the problem. I also understand the difference in payments, again no problem. I'm trying to determine if I will lose / gain anything on my investment if I sell in 5 yrs. For example, sometimes it's not worth paying points for the same reason if you're going to sell because the extra your giving the bank you don't recoup in this short time period. Does this make sense?
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Jacob Varghe…, , San Jose, CA
Tue Sep 7, 2010
The amount you put down be it 5, 10 or 20 has no bearing on the returns. The price of the property 5 year down the road matters.

DRE 01790347
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Scott Godzyk, Agent, Manchester, NH
Tue Sep 7, 2010
Jill your loan officer can easily break down what payment will be with putting down the minimum and putting down 10%. You need to look and see if there is enough of a savings in your monthloy payment and you leave enough in your savings in case there are any emergencies that pop up.

Your first step should be to meet with a local and trusted mortgage broker, they can prequailify yo at no cost and answer these questions.

Please see my blog for tips and advice on obtaining a mortgage

godo luck with your purchase
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