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IS PUTTING NO MONEY DOWN A GOOD IDEA?
Determining how much money to put down
on a new home purchase is a common dilemma for many
buyers. We have received many emails from consumers
requesting input on what they should do based on their
income and the sale price of their home.
Featured below is one of those emails and our response. If
you would like us to evaluate your personal situation,
please
contact us.
Dear Star Loan Services,
Currently, I am a renter but anticipate purchasing a
home in Woodmere, New York worth$550,000 utilizing a
30-year fixed rate loan. My yearly gross income is about
$200,000 with approximately $3,000 worth of total
expenses. I do not have any student or
personal loans, no
credit card debt. I think it is important to note
that I have $40,000 in savings.
Which scenario do you think would be better based on the
fact that I only anticipate living in the home for 3-5
years and then rent it out? Should I put 20 percent down
or should I do 80/20 with first (jumbo
loan) and second mortgages (equity
line)? I
may keep the house for three to five years and then rent
it out. Also, is purchasing a home now a wise
investment?
Regards,
Mark Rodger
Dear Mark,
An 80/20
piggyback mortgage is typically for individuals that
do not have any money to use for a down payment. You are
going to pay a higher interest rate for your second
mortgage as a result of the added risk your lender is
taking on being that you have zero equity in your home.
Since you have a respectable income and a decent amount
of money in savings, there is no reason for you to pay
those rates on a second mortgage.
Unfortunately, the amount you have in savings is not
enough for you to satisfy that 20 percent goal.
Therefore, you will need to choose between utilizing
only a first mortgage and
PMI, commonly known as private mortgage insurance,
or do another type of piggyback mortgage. For example,
an 80/10/10 has you contributing 10 percent towards a
down payment.
Regarding whether or not buying a home is a good
investment…consider the following: homes on Long Island
tend to be a good investment especially the local you
are considering. Woodmere is conveniently located about
thirty minutes from Manhattan and fifteen minutes JFK
airport. This being said, the property you are
interested in likely going to appreciate in value over
the years, making it a good investment.
With an annual income of $200,000 and current annual
expenses of $36,000 it is probable that you can pay down
your second mortgage fast. You may also want to consider
non-conforming financing with private mortgage
insurance with the goal of
paying down enough of the loan so that you will no
longer be required to pay the PMI.
When determining how much you can afford, use the
mortgage calculator.
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