5 ms·

One piece of millenial defeatism I hear a lot is "Ugh, I'll never be able to afford a 20% down payment, home ownership is impossible" I'm not sure where this m

One piece of millenial defeatism I hear a lot is "Ugh, I'll never be able to afford a 20% down payment, home ownership is impossible" I'm not sure where this myth came from, but as a millenial who went through the buying process in 2012 and again in 2016, I remember both times the lender just asked how much we wanted to put down. We could have gone as low as 3%, or maybe even lower. Yes, you have to pay PMI (private mortgage insurance) for probably a couple hundred bucks extra a month if you don't have 20% equity in the house- but you can stop paying it as soon as you get to 20, and you can count increases in the home value towards that (through renovations or just market conditions). You can even have the interest rate increased very slightly instead of a separate PMI payment if you want to spread out the cost over the entire loan. The point is, you'll likely need to have 3 months rent for first, last, and security deposit when you start an apartment rental anyway, so the initial costs might be closer than you think.

ozarkerD 5y ago
Very true. FHA loans let you put as little down as 3.5% for first time buyers. I wouldn’t recommend it but the opportunity is there.
- seattle_spring 5y ago
  FHA loans in a competitive market put the buyer at an extreme disadvantage versus conventional or cash.
  - asdff 5y ago
    You still hear of people in these markets snagging homes for like 5% down even with the competition. Maybe I misunderstand, but you don't pay any realtor any money until you buy the home. Seems that there isn't any pain being 'in the market' continually getting out offered 99 times out of 100, if it means you get an offer that one time and are going to be renting anyway until then. Plus the whole time you are presumably saving more money and coming up with a stronger down payment.
    - kube-system 5y ago
      Yes, but if you make an offer contingent on bank financing, and someone else makes an offer contingent on nothing, which offer would you choose as a seller? Guaranteed money now? or probably getting money after the bank completes their paperwork? Many people selling a home already have another home somewhere else, and they're not interested in keeping around another empty house to make payments on.
      - asdff 5y ago
        Not all offers are going to be all cash. People still buy homes putting down 5% or less in these hot markets, even if its not as common.
        kube-system 5y ago
        For sure, I'm just expanding on why it might be smart not to. I bought in a buyers market and still opted to put down as much as I could, rather than as much as I was required, so that I could have a better chance to get my 1st favorite pick. I personally wouldn't want to be in the position to settle on my 15th(+) favorite house. There's a lot of people being forced to make a lot of compromises right now -- will they be happy with their decisions years from now?
        asdff 5y ago
        For a lot of people, the thinking is years from now they will walk out with enough equity and gain to put a down payment on what they want without compromises. Hardly anyone gets everything they want in a first house.
      - mindslight 5y ago
        Even if you're financing, you don't have to make your offer contingent on financing. It puts your deposit at risk, but it might be easier than finding a seller who will accept that risk.
gbronner 5y ago
There are companies such as proportunity that will co-invest your downpayment as well
duped 5y ago
I mean this is the definition of a strawman argument. Whether it's 10 or 20% down payment is not that significant. Even 5% is un-affordable. The median sale price of a home was $347,000 last month (0). 5% down on that is $17,350, accounting for closing costs you're going to need around $24,000 in cash to purchase a home. Which isn't all that much money, except if you consider that it's more than 1/3rd of the median family income (1) and nearly 3 times the median household savings balance (2). The takeaway from these numbers should be that swathes of people cannot afford homes. (0) https://fred.stlouisfed.org/series/MSPUS# https://fred.stlouisfed.org/series/MSPUS# (1) https://www.census.gov/library/publications/2020/demo/p60-270.html https://www.census.gov/library/publications/2020/demo/p60-27... (2) https://www.valuepenguin.com/banking/average-savings-account-balance https://www.valuepenguin.com/banking/average-savings-account... (perhaps there is a better source for this).
- 1123581321 5y ago
  5% is not not 3x the median savings balance of families seriously trying to buy a home. That’s setting aside that lower income families tend to live near lower priced homes. Lower down payments meaningfully increase access to real estate. It matters hugely to be able to accelerate purchase timing by years, or decades.
  - duped 5y ago
    This reads a bit like "if you exclude all the people that can't afford a home, then the data suggests everyone can afford a home." Of course lower down payments increase access to real estate. The problem is half of all Americans can't even afford closing costs, let alone a down payment.
    - 1123581321 5y ago
      Close-it’s saying that there is a group of Americans approaching a 3.5-5% down payment who are in economically similar situations to people without savings, the difference being their saving/spending priorities. Appreciate the concession about the lower down payment mattering.
chrisseaton 5y ago
> I remember both times the lender just asked how much we wanted to put down Well then why doesn't everyone say zero? Why is it even a thing?
- kube-system 5y ago
  Because more equity = lower risk and lower risk = more options and lower borrowing costs
- staticman2 5y ago
  You usually can't put zero down. You have options but zero is not one of them. But in answer to your question putting more down can get you a better interest rate on the loan or less fees.
- smnrchrds 5y ago
  I don't know about other countries, but in Canada, the banks cannot legally approve a mortgage without a 5% or higher down payment.
smileysteve 5y ago
But if you go with 3% down, add pmi to your monthly payment and it's going to be tough to be in the same ballpark as a rental. Example: 377k home, 3% down is a $1461 payment; the $673 of equity you build each month is offset by $300 of pmi (not tax deductible). To sell will cost 6% (~24k if it appreciates to 400k). The likelihood of this being > rent of a equivalent home or leaving you underwater in 3 years is high.
- ransom1538 5y ago
  "To sell will cost 6%" I just sold a house a week ago without an agent. You can list on MLS for $45 and pay a flat fee to a broker in your neighborhood for ~1-2k. If you are selling do not pay agents. The market is red hot - they wont do anything except call you in 48hrs with offers. The title company does all the important paperwork anyway.
deleted 5y ago
[deleted]
mariojv 5y ago
I understand this is necessary for a lot of buyers, but if you are able to afford more of a down payment, it can be more prudent financially. Besides avoiding PMI, you're less likely to be underwater on the loan. If you only have 5% equity, you will have to pay to move if your home price drops more than 5% and you have to move for a job or other circumstance. 20% is a lot, but if it's doable, it gives you more of a buffer in the event of some bad luck.

ozarkerD 5y ago

Very true. FHA loans let you put as little down as 3.5% for first time buyers. I wouldn’t recommend it but the opportunity is there.

seattle_spring 5y ago
FHA loans in a competitive market put the buyer at an extreme disadvantage versus conventional or cash.
- asdff 5y ago
  You still hear of people in these markets snagging homes for like 5% down even with the competition. Maybe I misunderstand, but you don't pay any realtor any money until you buy the home. Seems that there isn't any pain being 'in the market' continually getting out offered 99 times out of 100, if it means you get an offer that one time and are going to be renting anyway until then. Plus the whole time you are presumably saving more money and coming up with a stronger down payment.
  - kube-system 5y ago
    Yes, but if you make an offer contingent on bank financing, and someone else makes an offer contingent on nothing, which offer would you choose as a seller? Guaranteed money now? or probably getting money after the bank completes their paperwork? Many people selling a home already have another home somewhere else, and they're not interested in keeping around another empty house to make payments on.
    - asdff 5y ago
      Not all offers are going to be all cash. People still buy homes putting down 5% or less in these hot markets, even if its not as common.
      - kube-system 5y ago
        For sure, I'm just expanding on why it might be smart not to. I bought in a buyers market and still opted to put down as much as I could, rather than as much as I was required, so that I could have a better chance to get my 1st favorite pick. I personally wouldn't want to be in the position to settle on my 15th(+) favorite house. There's a lot of people being forced to make a lot of compromises right now -- will they be happy with their decisions years from now?
        asdff 5y ago
        For a lot of people, the thinking is years from now they will walk out with enough equity and gain to put a down payment on what they want without compromises. Hardly anyone gets everything they want in a first house.
    - mindslight 5y ago
      Even if you're financing, you don't have to make your offer contingent on financing. It puts your deposit at risk, but it might be easier than finding a seller who will accept that risk.

gbronner 5y ago

There are companies such as proportunity that will co-invest your downpayment as well

duped 5y ago

I mean this is the definition of a strawman argument. Whether it's 10 or 20% down payment is not that significant. Even 5% is un-affordable. The median sale price of a home was $347,000 last month (0). 5% down on that is $17,350, accounting for closing costs you're going to need around $24,000 in cash to purchase a home. Which isn't all that much money, except if you consider that it's more than 1/3rd of the median family income (1) and nearly 3 times the median household savings balance (2). The takeaway from these numbers should be that swathes of people cannot afford homes. (0) https://fred.stlouisfed.org/series/MSPUS# https://fred.stlouisfed.org/series/MSPUS# (1) https://www.census.gov/library/publications/2020/demo/p60-270.html https://www.census.gov/library/publications/2020/demo/p60-27... (2) https://www.valuepenguin.com/banking/average-savings-account-balance https://www.valuepenguin.com/banking/average-savings-account... (perhaps there is a better source for this).

1123581321 5y ago
5% is not not 3x the median savings balance of families seriously trying to buy a home. That’s setting aside that lower income families tend to live near lower priced homes. Lower down payments meaningfully increase access to real estate. It matters hugely to be able to accelerate purchase timing by years, or decades.
- duped 5y ago
  This reads a bit like "if you exclude all the people that can't afford a home, then the data suggests everyone can afford a home." Of course lower down payments increase access to real estate. The problem is half of all Americans can't even afford closing costs, let alone a down payment.
  - 1123581321 5y ago
    Close-it’s saying that there is a group of Americans approaching a 3.5-5% down payment who are in economically similar situations to people without savings, the difference being their saving/spending priorities. Appreciate the concession about the lower down payment mattering.

chrisseaton 5y ago

> I remember both times the lender just asked how much we wanted to put down Well then why doesn't everyone say zero? Why is it even a thing?

kube-system 5y ago
Because more equity = lower risk and lower risk = more options and lower borrowing costs
staticman2 5y ago
You usually can't put zero down. You have options but zero is not one of them. But in answer to your question putting more down can get you a better interest rate on the loan or less fees.
smnrchrds 5y ago
I don't know about other countries, but in Canada, the banks cannot legally approve a mortgage without a 5% or higher down payment.

smileysteve 5y ago

But if you go with 3% down, add pmi to your monthly payment and it's going to be tough to be in the same ballpark as a rental. Example: 377k home, 3% down is a $1461 payment; the $673 of equity you build each month is offset by $300 of pmi (not tax deductible). To sell will cost 6% (~24k if it appreciates to 400k). The likelihood of this being > rent of a equivalent home or leaving you underwater in 3 years is high.

ransom1538 5y ago
"To sell will cost 6%" I just sold a house a week ago without an agent. You can list on MLS for $45 and pay a flat fee to a broker in your neighborhood for ~1-2k. If you are selling do not pay agents. The market is red hot - they wont do anything except call you in 48hrs with offers. The title company does all the important paperwork anyway.

deleted 5y ago

[deleted]

mariojv 5y ago

I understand this is necessary for a lot of buyers, but if you are able to afford more of a down payment, it can be more prudent financially. Besides avoiding PMI, you're less likely to be underwater on the loan. If you only have 5% equity, you will have to pay to move if your home price drops more than 5% and you have to move for a job or other circumstance. 20% is a lot, but if it's doable, it gives you more of a buffer in the event of some bad luck.