That's not always the case. A decent down payment can have an effect on whether or not you PMI. Also, depending on your loan, there are certain risks a down payment can help you avoid. Furthermore, why pay higher loan payments when you don't have to. An extra $10K down can save a lot of money in the long run.

 

There is another way around PMI. 2 mortagages. For instance, mu current house has two. House total price = 103,000 First mortgage = 93,000 Second mortgage = 10,000

Totals the same but it allowed me to get around PMI

 

"Cons: You'll get a competitive rate for the main 80% loan, but second mortgages carry higher interest rates, currently about 10%, and you have to make two payments each month. Also, PMI can be removed after you reach 22% equity, but you're stuck paying the higher interest second mortgage until you pay it off, no matter how much your house appreciates in value."
http://blogcritics.org/archives/2004/06/18/110743.php

 

I agree with Urbancowboy totally. Second mortgages are almost always a ripoff. They have ridiculously high rates AND they usually have PENALTIES for paying it off early.

I agree with Urban again. A downpayment gives you a smaller monthly payment, instant equity, a lot less money paid in interest over the life of the loan, 20% will get you no PMI, and less risk.

Why take more risk when you don't have too? Sadly too many people today think their personal finances have to inolve alot of risk. Life's not a high stakes poker game.

 

Monthly loan payments dont change much at all.

Life of the loan?

What is the average length of a home ownership now-adays in the US?

I really doubt the percentage of people that stay in a home for 30 years is very high. I might be wrong though.

My tip was in referrence to my experience of short term ownership, as in, less than 3 years.

 

Whaaaat???

Who wants to have a house payment until the day they die? So you only stay in the house 5 years then move every 5 years. You're still paying interest on the principle of whatever house you own. The idea is to pay for a house. Then you have 100% equity. That way you build wealth. You don't build wealth by making monthly payments your whole life.

Debt is dumb, cash is king is a saying I like.

Say you purchase a house for $200,000. You put 10% down or $20k. 30yr at 7% is a $1197 a month payment. Total interest paid is $251k

If you don't put any money down, your payment is $1330 per month. Total interest paid is $279 k.

 

Something like that, and I dont plan on living in the places I buy. Not yet anyhow.

I totally agree that cash is king. But if you only play with cash, it would take a LONG time to get to where I want to go.

I plan on multiple property ownership. Rentals. Ill buy one or two in the next year or so, then turn them over. Then maybe upgrade, or buy a few more.

Either way, you will have a positive cashflow, on a property that will only increase in value.

And when the time comes, sell out.

 

You should check out Dave Ramsey. http://www.daveramsey.com

He's owned over 1000 pieces of real estate in his life. He got his real estate license at 18 in 1979. By the time he was 26 he had a 4 million dollar real estate portfolio. It was built all on debt. Then the bank he had his loans through sold to another bank. The new bank decided to call all of his notes and he went bankrupt.

He now has a net worth of several million dollars. This time around he decided not borrow any money. He has two books: Financial Peace University and Your Total Money Makeover. He also has a 3 hr talk show on over 300 radio stations, plus Sirius and XM.

 

Having 200k tied up in a paid off house is not the financially smart thing to do.

I would much rather take that 200k and buy as many houses as I could, and flip them.

It's called Leverage.

 

There is normally no prepayment penalty associated with a second lien as well as the tax deduction benefits on a second lien. The idea is to buy properties with no money down in areas of growth and turn a profit. Apples and oranges for different finacial goals though.

 

I disagree, it's called wealth. If I don't have to be making payments I can use that money I would be making payments to invest in mutual funds or buy other real estate with cash.

You guys have been watching too many late night cable infomercials. I ain't drinking that Coolaid.

If you talk to people who have been in the real estate business 15 - 20 years plus you'll find out that they do it all with cash. The whole no money down thing is great until the economy cycles, the real estate market cools and you're left with all this property that you can't get rid of that has no equity in it. But what the heck do I know, I'm only taking advice from a person who has been in the real estate business for 27 years and owned over 1000 pieces of real estate.

 

There are advantages and disadvatanges to putting enough down to prevent paying PMI vs. getting two mortages. Pure financialy speaking, an 8% 2nd loan for someone in the 25-28% income tax bracket brings it down to 6%. Most people can manage better than 6% return investing than money in stocks and mutual funds or 401k retirement plans.

Some HELOC's do have prepayment penalties, but that's usually less than $500 which is only a couple months of PMI wasted.

You somehow forgot the extra $20k not put down that could be invested. Over 30 yrs at 8% return it would be worth about $200k. So, you pay an extra $133/mo for 30 years in your example for a sum of $48k, and you returned $200k with the $original $20k just sittign is a solid fund Hmm, sounds like a 300% return on investment. What's this about building wealth?

There are a lot of ways to build wealth. Buying a home that one lives in for 30 years and paying it off is usually not the best/quickest.

 

I don't follow your example. Are you saying that in both examples you have $20k? Because that's not what I was thinking when I wrote that. I was comparing putting no money down, to putting just 10% down. In my example if you took out the 200k loan you won't have the $20k in cash.

So if you put that $133/month in some mutual funds that averaged 8% for 30 years? That's $198,217 plus a paid for house that was originally 200k. Going up at 3% per year in value your house is worth $391k. So you have a net worth of almost $600k. That's just assuming that your salary never increases and you don't start making extra or double payments.

Keep in mind that the fine print on most loans probably says something about the bank being able to call your note at any time. Something to consider once you build your million dollar real estate empire on credit.

You can make the numbers work out however you want to. The fact is you can't borrow your way to wealth (even though I keep hearing a stupid radio ad that says that).

Next someone is going to tell me that cash value whole life insurance is better than term insurance.

 

I have a house, (the one that I live in) worth 300k, and it's paid for.

What is that 300k doing for me?

How am I becoming wealthy, sitting on 300k?

I could sell it, but I would still have to find someplace to live, like another 300k house, or similar.

So again, how does owning this house help me?

In my opinion, that 300k should be put to work, not sitting in brick and mortar.

 

Housing prices arne't going up where you live? Bummer.