4 ms·

It's a financial mistake to not put 20% down. Not only are you hit with $500+/month in PMI, you have almost negative equity into the house when you buy it. Mean

It's a financial mistake to not put 20% down. Not only are you hit with $500+/month in PMI, you have almost negative equity into the house when you buy it. Meaning if you have to sell on short notice you're either completely underwater having to pay back cap gains, or you're just breaking even. That's not an ideal situation and if you don't understand the mechanics going in, you'll find yourself in a world of hurt in an economic downturn.

opportune 7y ago
If you truly don't have the money for the down payment, the math of mortgage+insurance+property taxes+pmi+deductions might still work out to be in your favor over renting
- nostrademons 7y ago
  It's pretty unlikely in the Bay Area. There are fairly large distortions in the local market (because of Prop 13, zoning, wealth inequality, and small home supply in general) that usually make renting significantly more affordable than buying in general. See eg. this $1.9M home (estimated payment $9000/month, not including PMI) vs. this $4900/month equivalent: https://www.zillow.com/homedetails/910-San-Marcos-Cir-Mountain-View-CA-94043/19511543_zpid/ https://www.zillow.com/homedetails/910-San-Marcos-Cir-Mounta... https://sfbay.craigslist.org/search/pen/apa?min_bedrooms=3 https://sfbay.craigslist.org/search/pen/apa?min_bedrooms=3 (Also note that the $1.9M home is currently assessed at $170K, so the current owners are paying < 10% the roughly $15K/year in taxes that the buyer would be.)
  - opportune 7y ago
    Oh, for the bay area, absolutely. I will say though, might not make the most sense to pick a house in Mountain View as an example. For a couple just starting out in the South Bay that don't have two high earners and want to own a house, Fremont/Union City/Milpitas/San Jose are more realistic. Also because of prop 13, it can make sense to lose money on buying vs. renting in the short term if you anticipate staying somewhere for a long time, because of the potentially huge property tax savings. And for basically the same reason it can make sense to lock in a mortgage payment that doesn't look like a great deal on paper in the short term.
    - aceon48 7y ago
      Yes but then you need to commute an hour instead of 15 mins. Meanwhile that $5k rental oftentimes is in a brand new luxury building with full amenities and is very nice, and also has the 15 min commute
  - aledalgrande 7y ago
    Wow the Bay area is crazier and crazier, 2M for that dump... yeah 4 bedroom in Mountain View, but it's a 1964 and looks like it's going to fall down at the first gust of wind. Everything inside the house is to be remade too and in 2012 the property was worth 700K. That area is literally unliveable now.
    - nostrademons 7y ago
      It's a different lifestyle. You're just not in your house a whole lot in the Bay Area. My weekend involved a trip to a science museum & zoo; picnic lunch by the Bay; friend's kid's 2nd birthday party at a park; gymnastics class for my toddler; mom's group at the park; meeting up with mother-in-law; and a carnival. During the weekdays you're usually behind a computer screen most of the time, or you go for a hike, bike home, or take part in an organized activity (I took Krav Maga lessons after work from the former head of the IDF's counterterrorism training for a couple years). It doesn't make a whole lot of sense to spend a lot of money for a house or a lot of time to fix it up nicely when it's basically just a place to sleep. (Sometimes I wonder if folks who buy these $2M homes are just folks who have bought into the conventional idea of the American dream and absolutely must own a home.) And then on the flip side, most of those folks own financial assets elsewhere - either they get stock options in their employer, or they sell those stock options and diversify among other stocks, or they buy 5 homes in the Midwest and rent them out as an absentee landlord. The system is driven by the massive amount of money flowing into the region from all over the globe as software eats the world - this fills local municipalities with tax dollars that they can use to provide public goods, and it inflates the stock compensation that companies pay their employees, which gives them money to afford the exorbitant rents while still saving up a million or so. It's ultimately unsustainable - bad things are going to happen to Silicon Valley once software is not the engine of growth throughout the world - but that's probably a few decades off, and in the meantime people who partake in the system can afford to buy up whole city blocks in Detroit.
      - aceon48 7y ago
        That does sound like a wonderful weekend. We are relatively new to the Bay and still trying to find out way and people. How did you get connected to everything / find things to do and people to hang out with? We have a few month old baby
toast0 7y ago
Sure, PMI costs money. If it gets you off of the housing inflation train years earlier than waiting, it might be worth it. If housing prices go down after you finance with PMI, it might not have been worthwhile, but it's hard to know what's going to happen. It's worth at least looking down the path, and considering the details of your current situation, and not just not considering purchasing at all because you only have 10%, 15%, 18%, or whatever that isn't 20%. I don't understand how you can be 'underwater' but yet have capital gains. Certainly, selling a house is expensive, and if you put down only 5%, the loan balance could be more than your net sales price.

opportune 7y ago

If you truly don't have the money for the down payment, the math of mortgage+insurance+property taxes+pmi+deductions might still work out to be in your favor over renting

nostrademons 7y ago
It's pretty unlikely in the Bay Area. There are fairly large distortions in the local market (because of Prop 13, zoning, wealth inequality, and small home supply in general) that usually make renting significantly more affordable than buying in general. See eg. this $1.9M home (estimated payment $9000/month, not including PMI) vs. this $4900/month equivalent: https://www.zillow.com/homedetails/910-San-Marcos-Cir-Mountain-View-CA-94043/19511543_zpid/ https://www.zillow.com/homedetails/910-San-Marcos-Cir-Mounta... https://sfbay.craigslist.org/search/pen/apa?min_bedrooms=3 https://sfbay.craigslist.org/search/pen/apa?min_bedrooms=3 (Also note that the $1.9M home is currently assessed at $170K, so the current owners are paying < 10% the roughly $15K/year in taxes that the buyer would be.)
- opportune 7y ago
  Oh, for the bay area, absolutely. I will say though, might not make the most sense to pick a house in Mountain View as an example. For a couple just starting out in the South Bay that don't have two high earners and want to own a house, Fremont/Union City/Milpitas/San Jose are more realistic. Also because of prop 13, it can make sense to lose money on buying vs. renting in the short term if you anticipate staying somewhere for a long time, because of the potentially huge property tax savings. And for basically the same reason it can make sense to lock in a mortgage payment that doesn't look like a great deal on paper in the short term.
  - aceon48 7y ago
    Yes but then you need to commute an hour instead of 15 mins. Meanwhile that $5k rental oftentimes is in a brand new luxury building with full amenities and is very nice, and also has the 15 min commute
- aledalgrande 7y ago
  Wow the Bay area is crazier and crazier, 2M for that dump... yeah 4 bedroom in Mountain View, but it's a 1964 and looks like it's going to fall down at the first gust of wind. Everything inside the house is to be remade too and in 2012 the property was worth 700K. That area is literally unliveable now.
  - nostrademons 7y ago
    It's a different lifestyle. You're just not in your house a whole lot in the Bay Area. My weekend involved a trip to a science museum & zoo; picnic lunch by the Bay; friend's kid's 2nd birthday party at a park; gymnastics class for my toddler; mom's group at the park; meeting up with mother-in-law; and a carnival. During the weekdays you're usually behind a computer screen most of the time, or you go for a hike, bike home, or take part in an organized activity (I took Krav Maga lessons after work from the former head of the IDF's counterterrorism training for a couple years). It doesn't make a whole lot of sense to spend a lot of money for a house or a lot of time to fix it up nicely when it's basically just a place to sleep. (Sometimes I wonder if folks who buy these $2M homes are just folks who have bought into the conventional idea of the American dream and absolutely must own a home.) And then on the flip side, most of those folks own financial assets elsewhere - either they get stock options in their employer, or they sell those stock options and diversify among other stocks, or they buy 5 homes in the Midwest and rent them out as an absentee landlord. The system is driven by the massive amount of money flowing into the region from all over the globe as software eats the world - this fills local municipalities with tax dollars that they can use to provide public goods, and it inflates the stock compensation that companies pay their employees, which gives them money to afford the exorbitant rents while still saving up a million or so. It's ultimately unsustainable - bad things are going to happen to Silicon Valley once software is not the engine of growth throughout the world - but that's probably a few decades off, and in the meantime people who partake in the system can afford to buy up whole city blocks in Detroit.
    - aceon48 7y ago
      That does sound like a wonderful weekend. We are relatively new to the Bay and still trying to find out way and people. How did you get connected to everything / find things to do and people to hang out with? We have a few month old baby

toast0 7y ago

Sure, PMI costs money. If it gets you off of the housing inflation train years earlier than waiting, it might be worth it. If housing prices go down after you finance with PMI, it might not have been worthwhile, but it's hard to know what's going to happen. It's worth at least looking down the path, and considering the details of your current situation, and not just not considering purchasing at all because you only have 10%, 15%, 18%, or whatever that isn't 20%. I don't understand how you can be 'underwater' but yet have capital gains. Certainly, selling a house is expensive, and if you put down only 5%, the loan balance could be more than your net sales price.