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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?

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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