Buying Primary Residence, Does it make sense to put down 20%?

Question

I plan on buying a new primary residence , around 600k, does it make sense to put 20% down to prevent PMI? Or would you rather put 10% to get more cash for other investments?

20% down = 120k. 10% down = 60k

20% down , 3% APR, Monthly Mortgage with intest/tax = $2,582

10% down, 3% APR, Monthly Mortgage with intest/tax = $3,060. after 60 months of PMI, new monthly is $2,835

thoughts?

Mark H. Porter · Answer

Just consider PMI as interest and then

Compare.

Joaquin Camarasa · Answer

It depends of your risk tolerance. Is a $500 difference a month. It will take you 10 years to get back those 60k. I personally like to put down as little as possible and prefer to have the cash ready in case you decide to get into another project before the 10 years have gone by.

Darius Ogloza · Answer

That $13,500 in PMI is a deadweight loss.  Buy a mid-size sedan.  Used but reliable.  Run it off a cliff.  See how you feel.

The only time I would consider paying PMI is if I felt confident that I could appraise my way out of it in 12 months or thereabouts.

Chris Pettit · Answer

@John Smith. PMI is too costly.  At the rate the properties are appreciating if need be you could pull some $$ out after the closing.    Also its a function of a comfort of a smaller or larger  monthly  payment.

Sean McCluskey · Answer

@John Smith A large part of the increase in the payment is interest expense on the 60k. Only a portion is PMI.

Personally I think the answer about your time horizon is the best: if you wont be selling in 5 years, then it's safe to put less down.

Jaquetta T Ragland · Answer

@Theresa Harris great way to look at it. Can you put the other $60k somewhere else and make it work for you? So the extra $300 you’re paying per month, can you use that $60k to make that and possibly more over time, ie. appreciation, tax savings, monthly cash flow, etc?

John Smith · Answer

edits above

Jason Wray · Answer

As a Primary residence just put less cash down and use the banks money.  You still can put 5% down & PMI will not be that much different.  Also if you can negotiate seller contribution of 3-4% you can take a portion of that SC and buy out the monthly PMI.  So than seller pays for PMI you now have no monthly PMI and you still put 5-10% down keeping your money in the bank.  Also in in certain income brackets PMI can be used as a tax deduction so either way it may work out but with less down.

Theresa Harris · Answer

In the first 5 years (assuming you keep it that long), you will pay $30K to save $60K.  Could you take that $60K and get a better rate of return?

Alex Polyanskiy · Answer

How long do you plan to live there? Do you have stable income? If you plan to live there for a while, then you probably can afford to have a higher risk as long as you have ways to make the monthly payments even in tough times.

Buying Primary Residence, Does it make sense to put down 20%?

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