20 Percent Down Payment

Traditionally, that’s the standard down payment when purchasing property. 20 percent.

We all know that if you put down 20% or more, lender is more secured and convinced of your purchasing power. Your loan application will go easier and faster. And most of all, you won’t subject to a PMI (private mortgage insurance) on top of your monthly payment.

But since the housing boom, 20 percent down payment is not a norm and requirement for buyers and lenders. Actually, lenders loose up lots of criteria in order for buyers to complete the applications such as debt to income ratio, DTI, stretch to 45%- 55%, or LTV over 90% can still be exempt of PMI.    

With Bay Area’s medium house price still rising above $750,000, we have seen less 20% down payment transactions. But then, this means heavier PITI. (e.g. Take $750,000 as purchasing price, 6% interest rate, 10% down payment, mortgage monthly will be  $4047 , plus property tax (1.1%), insurance (1%-2%) and interest will add to $5000 plus monthly expense) Which, in a estimatable calculation: only a household monthly income of $15,000 would qualify the loan.

It seemed like it’s all numbers game. Would you put more money down to get the loan? in order to get the offer, in most purchase cases. Or would you bet the market, keep your cash reserve and selective a riskier loan program (e.g. 100% financing, interest only)

It all does not matter, the most important thing is:understand the loan program thoroughly. Know the term, margin ratio, penalty, rate cap, if any. And plan your finance and life around it. Remember, you are not buying a house with a burden, you are buying a house with enjoyment. Do your own math well, before you commit.

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