Do you put 20% down on primary residence?

Question

What are your opinions on percentage put down on primary residence? 20% and eliminate PMI? Or put down less and save/invest the money? And why?

Whitney Hutten · Answer

@Audrey Moore It all depends on your strategy.  If you intend on purchasing more investment property, you will need to do the around putting a large payment down to forgo the PMI versus if you spread out the funds to purchase more cashflowing assets (or started a flipping business).  When your property starts to appreciate, you can use that appreciation to qualify you to get out the PMI.  If you put more down, you will need to refinance out (and qualify with the bank again).

Marcus Auerbach · Answer

While 20% is the gold standard, the national average is just over 8% down for a primary residence. You can do 5% conventional, most sellers don't care as long as it's conventional and not FHA/VA. At least in Wisconsin - different story in CA for example, where you are expected to pay the difference if your appraisal comes in short. While most lenders charge PMI, not all do - I have a lender who self insures and does 5year ARMs with 5% down and no PMI, which a lot of my duplex house hack clients find attractive, because they plan to update and refi anyway, basically a duplex BRRRR / househack hybrid.

Personally I have felt very strongly about financing with 30 year fixed rate loans, but of course you can grow a protfolio only to 20 units at the most, so at some point I had to switch over to commercial products, which used to concern me. The part that I had missed is that they are amortized often over 25 or 20 years, which brings down your principal much faster, so by the time you refi, even at a much higher rate, your payment is not so different, because your principal is lower.

Another interesting aspect is that rates become negotiable with lenders when you loan sice grows into 7 figures. I am currently working on a commercial refi and we are going to package several properties, my bank really likes me and I am getting a rate that is close to a residential OO loan and fixed for 7 years. Great for cash flow!

Charles Carillo · Answer

@Audrey Moore

PMI is one reason but there are several others; pay off your home faster, likely get a lower interest rate, a better chance at getting a mortgage, make smaller monthly payments, you will also look like a stronger buyer to sellers. Also, there are less fees with a conventional mortgage.