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Why do people think you need 20% down? You don't need 20% down on a mortgage. There are first-time home buyer loans where you can put down as little as 0% and f

Why do people think you need 20% down? You don't need 20% down on a mortgage. There are first-time home buyer loans where you can put down as little as 0% and for conventional loans you just have to buy personal mortgage insurance if you're below 20% down. This is such a weird home buying myth and I don't understand how it sticks around.

Macha 5y ago
For some countries, there are legal requirements about maximum LTV. e.g. in Ireland the limit is 90% for a first time buyer of a personal home, and 70% otherwise.
- llbeansandrice 5y ago
  Fair enough, I made the US-centric mistake but 10% is vastly different than 20%.
cronix 5y ago
> you just have to buy personal mortgage insurance if you're below 20% down. You end up paying more in the long run when you add on PMI. I think they are internally conflating "should be avoided" with "can't." I do that with personal things all the time when I tell myself I can't do something that I shouldn't, but actually can do.
- ArchOversight 5y ago
  PMI for me is $71 a month. Which meant I could save money and use it towards home improvement to make my house better for me (and also increase its value). Putting down 20% doesn't make sense in my case, since home prices continuing to increase and me adding home improvements that increase the value of my home I will be able to refinance my loan in a little over 2 years to get rid of the PMI, and still have spent way less than the 20% down would have cost me.
- mywittyname 5y ago
  In general, I think it's a good tradeoff to pay PMI in order to get into a house earlier, or keep a larger down payment invested. PMI is generally <10% of the total mortgage payment and can be eliminated through appreciation, if one is willing to pay for an appraisal. I waited in order to save the traditional 20% down payment, and, in hindsight, that was a dumb financial move. Investment returns would have outpaced what I was paying in PMI by 10x each year, and the place appreciated enough in two years that I could have refinanced with no PMI without putting any additional money in.
tayo42 5y ago
Isn't pmi pretty significant?
- mind-blight 5y ago
  Not compared to everything else. Move was $60 with 10% down on a $350k condo. Total monthly payment was amosr $2100 per month including the HOA
- bussierem 5y ago
  I just bought a house, and put 10% down on the house. What I learned: - PMI is really not as expensive as you might think. I pay ~$150/mo extra and all told my mortgage is just over $2k/mo - PMI rate depends on a LOT of factors, including your lender's terms, your own credit history, and even the amount you put down. Your PMI gets re-evaluated yearly and the closer you are to the 20% equity on the house, the less PMI you pay. You can actually even get PMI waived as early as 18% sometimes, if you remember to ask them.
- llbeansandrice 5y ago
  I've not seen it above $100/month. More commonly ~$60-$90. I suppose it depends on what your definition of "significant" is.
deleted 5y ago
[deleted]
nly 5y ago
In the UK less than 50% of mortgages are fixed for terms of longer than 5 years. ...and less than 1% of recent mortgage completions are with 5% deposits (the minimum here)[0] There is one big reason deposit size matters: affordability and risk. PMI doesn't exist in the UK, it's built in to the rate. When you're stretching what you're borrowing to the maximum (thanks to these high price/income multiples) every 1% on a mortgage can be the difference between relative comfort, and being 'House Poor' and living with constant anxiety about rates rising before you can refinance. At the moment with 10% down: - 25 year fix: 4.64% - 5 year fix: 2.50% - 2 year fix: 2.10% With 20% down: - 25 year fix: 3.80% - 5 year fix: 1.70% - 2 year fix: 1.40% The other thing, that some other commenters have mentioned is that most lenders won't lend at high LTVs on high value properties, or on certain property types, like flats (minimum deposits of 20% on flats are common, which is particularly problematic given that they tend to be the most affordable properties). [0] https://www.financialreporter.co.uk/mortgages/95-ltv-mortgages-accounting-for-just-1-of-completions-trussle.html https://www.financialreporter.co.uk/mortgages/95-ltv-mortgag...
woobar 5y ago
Also, if you want to avoid paying PMI you can get a second mortgage to cover most of the down payment. With current low rates even if the APR for a second mortgage is 1% higher, one can save a lot by paying this high rate on a much smaller portion of the ballance.
- jrochkind1 5y ago
  I thought most lenders stopped allowing that after the last housing bubble. Are they doing it again? Hmm.
dfee 5y ago
Is this true everywhere? Not that I think it’s a great idea to buy in the Bay Area, but a $3M 1800sq foot home for a family of 3 who works from home in a good school district… is that really available with 0% down?
- eropple 5y ago
  Bay Area homes often don't qualify for FHA stuff due to price. Other major metropolitan areas do OK, though. I put 5% down on my first house just outside of Boston and 10% at my current home (voluntarily, my mortgage broker asked for 6.5%).
- ryathal 5y ago
  0% down is impossible for FHA or Fannie/Freddy, but it may be possible as a private loan or through grants that give you the 3-5% down required.
speby 5y ago
I agree. However, not putting 20% does typically result in less-than-the-best interest rate as well as PMI, thus adding more to your monthly costs. Also, less than 20% also results in a larger mortgage payment regardless than compared to putting more down.

Macha 5y ago

For some countries, there are legal requirements about maximum LTV. e.g. in Ireland the limit is 90% for a first time buyer of a personal home, and 70% otherwise.

llbeansandrice 5y ago
Fair enough, I made the US-centric mistake but 10% is vastly different than 20%.

cronix 5y ago

> you just have to buy personal mortgage insurance if you're below 20% down. You end up paying more in the long run when you add on PMI. I think they are internally conflating "should be avoided" with "can't." I do that with personal things all the time when I tell myself I can't do something that I shouldn't, but actually can do.

ArchOversight 5y ago
PMI for me is $71 a month. Which meant I could save money and use it towards home improvement to make my house better for me (and also increase its value). Putting down 20% doesn't make sense in my case, since home prices continuing to increase and me adding home improvements that increase the value of my home I will be able to refinance my loan in a little over 2 years to get rid of the PMI, and still have spent way less than the 20% down would have cost me.
mywittyname 5y ago
In general, I think it's a good tradeoff to pay PMI in order to get into a house earlier, or keep a larger down payment invested. PMI is generally <10% of the total mortgage payment and can be eliminated through appreciation, if one is willing to pay for an appraisal. I waited in order to save the traditional 20% down payment, and, in hindsight, that was a dumb financial move. Investment returns would have outpaced what I was paying in PMI by 10x each year, and the place appreciated enough in two years that I could have refinanced with no PMI without putting any additional money in.

tayo42 5y ago

Isn't pmi pretty significant?

mind-blight 5y ago
Not compared to everything else. Move was $60 with 10% down on a $350k condo. Total monthly payment was amosr $2100 per month including the HOA
bussierem 5y ago
I just bought a house, and put 10% down on the house. What I learned: - PMI is really not as expensive as you might think. I pay ~$150/mo extra and all told my mortgage is just over $2k/mo - PMI rate depends on a LOT of factors, including your lender's terms, your own credit history, and even the amount you put down. Your PMI gets re-evaluated yearly and the closer you are to the 20% equity on the house, the less PMI you pay. You can actually even get PMI waived as early as 18% sometimes, if you remember to ask them.
llbeansandrice 5y ago
I've not seen it above $100/month. More commonly ~$60-$90. I suppose it depends on what your definition of "significant" is.

deleted 5y ago

[deleted]

nly 5y ago

In the UK less than 50% of mortgages are fixed for terms of longer than 5 years. ...and less than 1% of recent mortgage completions are with 5% deposits (the minimum here)[0] There is one big reason deposit size matters: affordability and risk. PMI doesn't exist in the UK, it's built in to the rate. When you're stretching what you're borrowing to the maximum (thanks to these high price/income multiples) every 1% on a mortgage can be the difference between relative comfort, and being 'House Poor' and living with constant anxiety about rates rising before you can refinance. At the moment with 10% down: - 25 year fix: 4.64% - 5 year fix: 2.50% - 2 year fix: 2.10% With 20% down: - 25 year fix: 3.80% - 5 year fix: 1.70% - 2 year fix: 1.40% The other thing, that some other commenters have mentioned is that most lenders won't lend at high LTVs on high value properties, or on certain property types, like flats (minimum deposits of 20% on flats are common, which is particularly problematic given that they tend to be the most affordable properties). [0] https://www.financialreporter.co.uk/mortgages/95-ltv-mortgages-accounting-for-just-1-of-completions-trussle.html https://www.financialreporter.co.uk/mortgages/95-ltv-mortgag...

woobar 5y ago

Also, if you want to avoid paying PMI you can get a second mortgage to cover most of the down payment. With current low rates even if the APR for a second mortgage is 1% higher, one can save a lot by paying this high rate on a much smaller portion of the ballance.

jrochkind1 5y ago
I thought most lenders stopped allowing that after the last housing bubble. Are they doing it again? Hmm.

dfee 5y ago

Is this true everywhere? Not that I think it’s a great idea to buy in the Bay Area, but a $3M 1800sq foot home for a family of 3 who works from home in a good school district… is that really available with 0% down?

eropple 5y ago
Bay Area homes often don't qualify for FHA stuff due to price. Other major metropolitan areas do OK, though. I put 5% down on my first house just outside of Boston and 10% at my current home (voluntarily, my mortgage broker asked for 6.5%).
ryathal 5y ago
0% down is impossible for FHA or Fannie/Freddy, but it may be possible as a private loan or through grants that give you the 3-5% down required.

speby 5y ago

I agree. However, not putting 20% does typically result in less-than-the-best interest rate as well as PMI, thus adding more to your monthly costs. Also, less than 20% also results in a larger mortgage payment regardless than compared to putting more down.