4 ms·

> it'd be the correct financial decision (really correct in fact) to buy the property Is it still the correct decision if I do not have a 20% down payment (or

by ttymck 6y ago

> it'd be the correct financial decision (really correct in fact) to buy the property Is it still the correct decision if I do not have a 20% down payment (or even a 5% down payment)?

waterheater 6y ago
Depends on opportunity cost. You might consider reaching out to trusted family for short-term financial assistance (loan interest is the problem, not the loan itself). You may be able to get a bank loan to cover the down payment, but is that worth it? Depending on the real estate market and your specific property, a monthly mortgage payment has a good chance at being lower than comparable monthly rental payments. Bear in mind: every dollar paid for rental is burned, whereas every dollar paid to a mortgage has at least some potential to be recovered in the future. And think a few years out: say you pay $800/month for rent. Over three years, that adds up to $28,800. If you live in a hot area, your rent will likely increase, so you'll pay more in the long run. A mortgage payment, however, will not, and you might get that $28,800 back through renting it and/or selling. I see renting vs ownership as "XaaS" vs in-house. Renting is essentially Housing as a Service. There's a use case for XaaS, but at a certain point, owning critical infrastructure just makes sense.
- diggernet 6y ago
  I agree that buying is preferable to renting (and better for your finances). But you underestimate the difficulty of doing that if you are poor. There are many folks who do not have any family or friends who are well enough off to be able to part with the money for your down payment. And no, you cannot get a bank loan to cover the down. The down payment exists because the bank wants to be sure that you have some skin in the game. In fact, a big part of the process of getting a mortgage loan approved is the bank digging into your financial records to confirm that the down payment is really your money, not a loan (from a bank or even trusted family). If they are not convinced it's your money -- no loan for you!
  - waterheater 6y ago
    I suspected a loan wouldn't work for the down payment, but I wasn't 100% sure. Thanks for clarifying. Oh, I know it's very difficult for poorer people to buy property. Are you familiar with land contracts (also called contract-for-deed)? In certain scenarios, they provide a path to ownership for poorer people, but they're also offered in a predatory manner. I'll add that a poorer person seeking to buy might consider moving out of a big city to a smaller town. Obviously, this approach isn't for everyone. However, if home ownership is that important, you can find nice homes for sub-$150k in many smaller towns. At that price, a 30-year mortgage is under <$1000 a month. Considering how much a two- or three-bedroom apartment may cost in a big city, financially, it works out.

by ttymck 6y ago

> it'd be the correct financial decision (really correct in fact) to buy the property Is it still the correct decision if I do not have a 20% down payment (or even a 5% down payment)?

waterheater 6y ago

Depends on opportunity cost. You might consider reaching out to trusted family for short-term financial assistance (loan interest is the problem, not the loan itself). You may be able to get a bank loan to cover the down payment, but is that worth it? Depending on the real estate market and your specific property, a monthly mortgage payment has a good chance at being lower than comparable monthly rental payments. Bear in mind: every dollar paid for rental is burned, whereas every dollar paid to a mortgage has at least some potential to be recovered in the future. And think a few years out: say you pay $800/month for rent. Over three years, that adds up to $28,800. If you live in a hot area, your rent will likely increase, so you'll pay more in the long run. A mortgage payment, however, will not, and you might get that $28,800 back through renting it and/or selling. I see renting vs ownership as "XaaS" vs in-house. Renting is essentially Housing as a Service. There's a use case for XaaS, but at a certain point, owning critical infrastructure just makes sense.

diggernet 6y ago
I agree that buying is preferable to renting (and better for your finances). But you underestimate the difficulty of doing that if you are poor. There are many folks who do not have any family or friends who are well enough off to be able to part with the money for your down payment. And no, you cannot get a bank loan to cover the down. The down payment exists because the bank wants to be sure that you have some skin in the game. In fact, a big part of the process of getting a mortgage loan approved is the bank digging into your financial records to confirm that the down payment is really your money, not a loan (from a bank or even trusted family). If they are not convinced it's your money -- no loan for you!
- waterheater 6y ago
  I suspected a loan wouldn't work for the down payment, but I wasn't 100% sure. Thanks for clarifying. Oh, I know it's very difficult for poorer people to buy property. Are you familiar with land contracts (also called contract-for-deed)? In certain scenarios, they provide a path to ownership for poorer people, but they're also offered in a predatory manner. I'll add that a poorer person seeking to buy might consider moving out of a big city to a smaller town. Obviously, this approach isn't for everyone. However, if home ownership is that important, you can find nice homes for sub-$150k in many smaller towns. At that price, a 30-year mortgage is under <$1000 a month. Considering how much a two- or three-bedroom apartment may cost in a big city, financially, it works out.