I'm little short on saving 20% down payment for the price range of house I'm planning to buy. Meanwhile, I'm hearing diversified comments from friends and family where few paid 20% upfront and few with just 5% along with monthly PMI. What could be a wise financial decision and why?
Just be patient for the 20% down. If you’re going to refinance it anyway might as well wait.
Depends on the location. We did PMI and we're up 300k after 3 years so it made more sense to invest as soon as possible than wait in that market.
If you have money in a taxable stock account see if you can get a margin loan to cover the difference to get to 20% down. Interactivebrokers.com has rates around 1%
People that did low-money-down loans recently happened to come out on top due to the strongest bull run in the us real estate market’s history. There’s no reason to assume that growth will continue. Your 5% down is an investment that you can either put in one place (a house) and hope it goes up, or into a diversified place like a broad index etf and be relatively certain it will average out to 6-7% growth. You can always reinvest securities later - but that house is illiquid. Interest rates are going up probably next year, which means housing prices will experience downward pressure. Wait it out. PMI is an unnecessary (and non deductible) expense.
Thanks for the great response! Yes, I was thinking the same to wait until I build 20% down..
Go with 5% and PMI and refinance it to remove PMI
You’ll pay to refinance, but dropping the interest rate alone will recoup that very quickly.
You don't know what interest rates will be in the future when you're ready to refinance