How Much Money Down? Part 2

by Mike Goblet on April 24, 2013

Matt O’Brien: We’re back with another segment of Arizona Mortgage News. We’re here with Mike Goblet of United Mortgage and Financial Group. We left off last time. We were talking about how much money to put down when buying a home. Mike, can you help us out with that one?

Mike Goblet:  Right, Matt. Last we were talking about is what is required to put down, and that can be as little as three percent to whatever amount you want, up to even 100 percent, obviously. One of the real key differences there, whenever you put less than 20 percent down, you’re likely to have PMI insurance or private mortgage insurance that does nothing but protect the lender in case of default for that extra amount less than 20 percent. Bottom line, you’re required to only put down as little as three percent on a conventional, 3.5 on an FHA, and actually, there’s even still some loans out there, USDA, which you can get 100 percent financing on, but that’s actually geographically specific as to where it’s available. Now, you know how little you can put down. How much should you really put down becomes the real question.

Matt:  That is a good question. What do you recommend in this type of market, where we’re fortunate in Arizona, where things seem to be coming back, and I’m sure people want to hold on to their money as much as they can?

Mike:  Well, they do, and I think that’s a good thing. Many people feel they can’t go buy a house until they have the 20 percent to put down. That can mean a lot of loss and cost you tens of thousands of dollars if you wait right now until you have that money. My real suggestion is, put down whatever amount you’re comfortable with, even if you have to have MI insurance as a result. Now, comfortable with, to me, I’ve watched many people become house rich and cash poor. They buy up end house, what they can’t afford. They use all their savings towards that down payment and leave themselves no rainy day funds or funds for emergencies.

I don’t like to see that. You can do that. Strangely enough, a lender doesn’t care if you don’t have any reserves. They only want to know how much money you’re making monthly. If you happen to have savings on top of it, good for you. But I think some people should be wise and make sure they leave themselves funds in case of an emergency, for health reasons, job loss or whatever might come up, a new car.

Even if you don’t have the 20 percent down, maybe you only put down 10 percent, have MI insurance, which you can likely get out of it when the home appreciates in value and keep yourself that cash backup reserves.

Matt:  That makes a lot of sense, Mike. Any other thoughts on, when looking for the best investment or home? When it comes to a second home ‑‑ I know we covered that a little bit ‑‑ are there variations of whether this is your primary or secondary? And the rules, have they changed or are they pretty much the same?

Mike:  The rules for a second home are very good. Actually, you only need to stay in it. I think it’s 21 days out of the year to qualify as a second home. As long as you can make that commitment that you’re going to be able to do that, it can be there as a second home and candidly, the rates and pricing are exactly the same as a second home as on a primary residence. They really give you the full benefits. Second home, you need to put down at least 10 percent and then however much you want on top of that. They’re a good investment today, especially where housing prices are. They’re still relatively low, particularly in terms of how much they’re appreciating. Arizona was 20 percent year over year in December, and it’s still appreciating.

Matt:  Those interest rates for financing your mortgage, I’m sure they’re not going to get any lower, than they are right now.

Mike:  No, they’re not. They’re still at the historic lows, thanks to a little bit of what the Fed’s doing with their Quantitative of Easing program, but also, with what’s going on in the world economy. The bond market, which is where the mortgage backed securities are sold, are still considered a good safety valve to store your money in. That’s keeping rates low, as well. Depending upon the loan amount, you can probably do a 30‑year fixed, at about 3.625 with no closing costs, with enough rebate to cover the closing costs. These are incredibly low rates, especially when you consider the historical average is seven percent.

Matt:  It seems like you are the right person to talk to, when you have an opportunity in this market. Any other parting thoughts, or should we save it for a follow‑up segment?

Mike:  Let’s save it for the next segment. We’ll figure something creative that’s really tied to what’s going on in the marketplace. I have a couple of thoughts about that, but let me get back with you, and we can prep it.

Matt:  This is another segment of Arizona Mortgage News with Mike Goblet. We’ll look forward to you tuning in to our next episode. Thanks, Mike.

Mike:  I look forward to you guys coming back.

Matt:  Thank you. Bye bye.