Real estate question.

[bluepea]

I was reading an article about down payments the other day. One thing they talked about was the 20% down vs having to pay PMI. They brought up the negatives about having a low/no down payment, and suggested it'd be financially smarter to continue renting while waiting to save enough for a down payment.

Now, my thought is if you're still renting, you're still paying money and getting nothing in return, correct? So, if your rent is $1000 a month and it's going to take you two years to save up 20% to avoid having to get PMI, you're spending $24,000 on rent. Is that cost worth it to avoid having to pay for PMI? Does it really add that much to your mortgage? And you can drop it once you've paid down 20% (I know interest isn't factored) right?

Also, there's always so much talk about no down payments and low down payments. Are many of them legit? What's the story on those?

Just thinking and planning right now.

[voyd]

^ My dos centavos:

The bigger your down, the better the rest of the terms of your loan will be.

No or small-down loans are best for flipping properties in bubble markets. However, in slow markets, you'll want to put down a bigger down to get a better deal for the longer haul.
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Cuz, a lot of people don't realize that homeowning has some regular costs too, aside from the mortgage/unit price.

Property tax will average out to ~$150-$200/month
Maintenance will likely be ~$100/month (association fee for condos or repairs/lawncare for houses).
Utilities will generally be $100-$200/month.
Insurance may be ~$25/month.
Cable/internet may be $50/month.

Now, renting an apt will have many of these same costs, but they're often lower due to a smaller unit size or included in the rent.

So, "extra" homeowning costs can still add up to almost $400/month, although that is still probably less than your combined total at your rental place.

Add in your mortgage though, and now you're probably well over the rental price. HOWEVER, you are at least paying money towards owning the property now. Which means you can get a lot of it BACK when you eventually sell it. Whereas you NEVER will with a rental. Also, you could always rent out part of your property, which would definitely be a bonus over renting..
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Bottom line: Don't expect your immediate costs to drop from homeowning simply because you aren't paying rent anymore. That will be more than replaced by your mortgage and other monthly costs. HOWEVER, most of that, if not more, can be recouped over time. And even 1% recouped is better than 0% with rentals, lol.

[LiveFreeorDie]

I would recommend talking to a mortgage broker. They can give you some options. For example, you can get around the PMI issue by taking out a mortgage for 80% of the purch price and then a home equity loan for 15%. This means you have effectively financed 95% of the purch price and will have no PMI. The downside is that the home equity loan or line will have a higher rate of interest than the mortgage, so you really have to look at the numbers to see what the best option is. Hope this helps. Good luck.

[travelpunk]

All I can tell you is that PMI is such a tiny thing to consider. As Jamie suggested, lenders will give you a loan that won't exceed 80% on the 1st mortgage and then they'll drop a 2nd mortgage behind it for the full 20% if need be. This will eliminate the PMI or Private Mortgage Insurance factor.

Really, there are many banks that will loan 100% even in one loan without PMI. I know this because I have worked in mortgages the past 3 yrs .

I'm all about leverage, so the way I would do this is this- (over simplified version)

EXAMPLE: Subject property is appraised at fair market value for $200,000

I would write an offer for $180,000, seller to pay 3-6% for closing costs (or state a dollar amount- $10,000).

Then, I would get a loan for 100% financing, with no prepay (if I must do a prepayment penalty, 1yr is fine).

Essentially, what I've just done was bought a piece of property with no money down, seller paid all of my closing costs and after the loan funds, I will have a property with $20,000 in equity.

Sure, your payment will be higher then that of your rent (depending on what type of mortgage you're in), but you'll get pride of ownership and you'll be on your way to building wealth, should you continue to expound on that.

Call it going to the next level.

If your property appreciates 10% in the next year or so, you now have $40,000 in equity. 10% the following year and you've got around $65k. Follow me here?

Appreciates higher than that, then fuggetaboutit......