10% or 20% Down Payment or 5% and invest the rest?

Question

Hi Everyone, my wife and I are looking at buying a new home. We're looking at a conventional loan but can't decide how much money to put down for the down payment. In this low interest rate environment, does it make more sense to put 5% down and pay PMI and invest the rest of the money in the stock market or put down 10% or 20% to have no PMI and a lower monthly payment? Appreciate everyone's thoughts on this. Thanks!

Andres Sanchez · Answer

Thanks everyone for your replies! Appreciate it!

Jimmy Lieu · Answer

I am planning on closing by the end of the year and I'm personally planning on doing a 5% down conventional financing. The reason is because MIP goes away after you reach around 20% equity. I want to leverage my cash as much as possible rather than keeping a lot of it in one property. Yes, that means less cash flow. However, if you can do a small % down and still meet your financial goals/cash flow, I would do that.

Also, think of opportunity cost. The money you put into that big 20% down payment could be used for stocks or investing. I put a bulk of my capital into cryptocurrency and I'm close to making 6 figures alone from my investments.

Elise Marquette · Answer

This all depends on your goals and how long you plan to remain in the home/ what you want your monthly payment to be. Generally I don't advocate for putting money into your house. On a Conventional loan, the most you can access at a time is 80% of the value of the house for a cash out refi and that's going to come with about 2-3% of the loan amount in closing costs. If your house is appreciating quickly, then it may be a little more tempting to do it, but I'd rather have the cash on hand to put into something a little more easily accessible.

I also don't know that I really advocate for stocks either- I'm sure I'm going to get flack for this but stocks have always struck me as high class gambling.

Personally, I'd keep the cash on hand and keep saving until I had enough of a down payment to buy a small apartment building that'll cash flow

Mack Benson · Answer

I think this depends on your goals. It looks like the current PMI rate on conventional loans is between 0.19% and 1.86% annualized. Can you reasonably expect a higher return that 1.86% on your investment? If so it could be a good investment, if your return would be close to or less than 1.86% then I believe it would be best to use your extra capital on a higher down payment.

In general I'm not a huge fan of using capital to pay down debt when debt is as cheap as it is today. If you use capital to pay down cheap debt you limit your ability to use leverage to build your portfolio.