15% or 20% down on first deal?

Question

Buying a SFH with a conventional loan for 95k. I got two options from my loan officer.

1) 20% down (19k) , 4.875% interest, P&I = $402, Cashflow = $200

2) 15% down (14.2k), 4.875% interest, PMI = $22, P&I = $427, Cashflow = $150

Which one makes more sense?

Theresa Reynolds · Answer

@Benjamin Aaker@Evan Polaski

Are you referring to the difference between the two downpayment options with 5.8k?

I'm getting 4.8k as difference

But yes, I am planning to buy more properties, I just don't know when I will find another deal. So technically it could sit in the bank for another year earning next to nothing in interest, but hopefully I'll be able to invest it.

It looks like I should be able to cashflow 150$/month with option 2, but I am debating to try turning it into a short term rental getting a potentially better return.

Evan Polaski · Answer

@Theresa Reynolds, As Benjamin mentions, what is your $5.8k doing for you?  Having less in a deal is typically better, and your PMI is only costing you 4.5%.  If you can do something with that 5,800 that earns more than 4.5%, you are netting ahead.

Alternatively, having that 5,800 even as reserves is very valuable on its own right, since things will come up, and sometimes things come up 2 weeks after closing.  Rarely, does it make more sense to put less down, assuming you can cash flow with a higher mortgage, and particularly with a mortgage where once it is in the property, you basically can't touch it.

Tiffany Barracks · Answer

Option 2!

Benjamin Aaker · Answer

I'm assuming because you gave P and I of ~400 that you are giving us monthly and not yearly cash flow. What do you plan to do with the 5.8k difference? Are you accounting for the $22 PMI in your $150? Calculate the difference in cash flows and determine if you can do better than that by investing your 5.8k. If you can, then it's option #2.