Buying a Home Without the Money

Buying your first place is stressful enough, but trying to buy it when you don't have the money is even worse. (See also: What It Really Costs to Own a Home)

I recently confessed that I don't have the 20% down payment for the place M and I want to buy. Coming from someone that writes about personal finance every day and tries to get other people to be more responsible with their money, it makes me feel like a hypocrite.

In my "confession," I justified my decision to buy by acting like a child: "because I want to." Upon further review, I actually have some decent reasons.

The Case to Buy

Mortgage rates are low. We're talking historically low. Less than ten years ago, people were buying homes and paying up near 10% in interest. Which is crazy compared to the 5-6% you can get right now.

And only a few months ago, people were refinancing left and right at rates below 5%. Over the life of a 30-year, $250,000 mortgage, you'd pay $261,000 in interest at 5.5% vs. $410,000 at 8%. So the rate matters quite a bit.

Prices are low. The housing bubble has popped and prices are coming down all over the country. You've probably read all about it on the news, but I've actually seen prices come down over the past year.

Listings M and I looked at a year ago have come down quite a bit, and they're still coming down as some people are desperate to sell.

The Obama tax credit. Until the end of November, first-time home buyers will get an $8,000 tax credit that they don't have to pay back. Pretty sweet, right?

asked for advice on this a few weeks ago, and most of my readers pointed out that $8,000 is peanuts compared to the amount of money you're going to pay over the life of your mortgage. And I agree. But it's hard not to see this credit and pretend you're just knocking off almost $10,000 off the purchase price. The credit might get extended so that might buy people some extra time.

Equity building. The sooner you start building equity, the better. Although we like the place we're renting right now, it does feel a little wasteful giving all that money up every month knowing you'll never see any of it again.

I like the flexibility and safety of renting (I don't care if an appliance breaks), but I want to start building equity as soon as possible.

Bottom Line: To Wait or Not to Wait

Buying a home without having the 20% down payment is not a financially sound decision—I know that. The thing is, these are not financially sound times. If it takes M and I another year and a half to save up the money to go from 13% to 20%, we could miss the boat on the low prices, low interest rates, and the time to build up our equity.

By then we might not be able to afford the places we can afford today.

Are these good enough reasons to break the 20% rule or am I just another home buyer getting in over his head?

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Guest's picture

In my view, your reasonings are sound. And presuming you're not buying way more house than you actually need, having one mortgage is not the end of the world. Especially if you have no other long-term debt.

Go buy your house, make it a home.

And then get on a track that allows you to pay it off early.

Good luck!

Guest's picture

If you have a 10 percent down payment, most lenders will let you get 2 mortgages (one at a higher rate, admittedly) to avoid PMI.

And if you do have to pay it, it's tax deductible...

Guest's picture

Building equity is not what is relevant--it's the total cost of buying versus renting you should consider. If you buy, you are "throwing away" much more than your monthly rent costs in expenses related to the house such as interest, property taxes, and opportunity costs (savings at possible 8% return, vs inflation-adjusted appreciation of your house that is likely near zero). You are tying up a huge amount of capital. True, if you sell you get some of it back, but there is a huge cost associated with it.

Buying a house is not a smart *financial* decision unless those costs are less than the cost of renting. This is true in a few markets, like Detroit, Pittsburgh, but in the overwhelming number of markets, it is not. It may be a good decision for you to buy in other ways (you can buy exactly the house you want, make improvements, keep a permanent address for a while, etc.), those ways are just not financial.

Guest's picture

Howide Partner – Please, PLEASE don’t buy the house until you have at least 30% of the House value down! Please?

Unless you have 70,000 readers like Trent and JD, and make $20 to probably $40,000/month just from blogging, don’t do it!

Do not co-mingle your finds, which means no raiding of anything. A house is indeed a special place, but it will be your nightmare if you suddenly lose all your income. You need to come up with 20% down, and then have that further 10% buffer just in case something happens.

$1 mil house? $200,000 down, $100,000 buffer in cash. It’s that simple.

Hang tough, and don’t fall into the temptation. And if you need any more straight from the gut advice, come by Financial Samurai and share your thoughts.


Guest's picture

How large is your emergency fund and savings?

To me, that's far more important that your down payment amount. Can you afford to lose your income for 6 months or more and still keep the house? Can you afford to have your income substantially cut for possibly years and still keep the house? People got into big trouble because they thought their incomes would only go up, but the truth is that incomes aren't guaranteed like that.

Also, if you don't have a good-sized down payment for a home then that IS a sign that you probably can't afford it. Owning a home is a lot more costly than renting. Your utilities will probably be higher. You'll have to pay for mortgage insurance. Then there are the taxes -- which can go up significantly! And when things go wrong and need to be fixed or replaced -- which they WILL -- it's up to you to pay for it all. And heck, just the fact that the house is yours will make you want to spend money on a lot of little things that you would have probably left alone if you were just renting.

Owning a home can be great, but until you've been there you probably don't understand how large a burden and risk it can be. I would caution anyone to wait until they can TRULY afford it. There WILL be other great deals. Remember how many people bought homes they couldn't afford a few years ago because they thought they'd never be able to afford a home if they didn't hurry up and buy one before prices rose even more!

Guest's picture

At first blush, I'd say go for it. My wife and I didn't put any money down on our house five years ago - but we also didn't overspend. We now find ourselves in a mediocre position - we don't have much equity in the house, and we're considering moving within the next year. If our appraisal doesn't go up, we could be looking at breaking even, MAYBE.

We're not in a bad area; it's just that with appraisals based on comps of homes that have actually sold in the last year (for far less than they'd normally be worth, due to the depressed market) our appraisal is only a few thousand more than we paid.

The whole situation has caused me to rethink the idea of owning a home. Is it really the American dream? We've done a lot of work ourselves to the house to improve it to how we want it. We probably won't get that money back.

If we move again, it will probably be out of state, and I'm not sure we want to buy another house - especially if we'll want to move again in a few years after that.

I would say if you're planning to be in the house a good amount of time (with 13% down, at least 5 years probably), then it makes sense. But if you're going to move, it's not the best move, so to speak!

Guest's picture

One major premise in your argument you may want to reconsider is that if you wait you may miss the boat. Have you been listening to too many REALTOR commercials lately?

Once the bottom is actually hit it won't be a V shaped bottom. You will have plenty of time to jump in. Or if it is, the V part will only represent a small portion of any price change.

Don't pick bottoms. If you do, make sure the asset class is liquid so you can get out if need be. Houses are not liquid. If you want to pick bottoms in the housing market buy a housing industry ETF, or the Ultra/3X ETF.

This method of course doesn't really work for those who invest in specific areas - but then again I'm pretty certain you don't have some inside knowledge on an imminent change in your local real estate market that gives you an edge worhty of deciding to buy.

Xin Lu's picture
Xin Lu

To be honest I think this article sounded a bit like what all realtors are saying to first time homebuyers now.  I am not familiar enough with your situation to give advice on whether or not it's a good decision for you, but I feel like you should research what kind of loans you can get without a 20% downpayment, and if it's worthwhile to buy the house considering all the costs.   As a previous commenter mentioned, any loans with less than 20% equity would slap you with a PMI.   Also, building equity is not exactly guaranteed considering that home prices are still falling in certain areas, and depending on the type of loan you get you might not be building equity at all.  Also, you should consider  if you will be moving anytime soon.  Anyway, buying a house isn't totally about having the money, because anyone with a mortgage technically could not afford their houses in the entirety.  It is really an individual decision and everyone's circumstance is different.  I would say definitely don't rush into it just because of outside stimuli such as the tax credit. 

Guest's picture

This may be a decent time to buy, but that doesn't mean buying is the right thing. If you aren't going to be able to get that 20% equity and get rid of any PMI within the next year its probably not worth it. When you own a house there are a lot of expenses that seem like throwing money away even more so than rent does. Insurance, Taxes, Fees, Repairs, Any utilities that were normally handled. Sure its a decent time, but you need to be ready to commit to multiple years of living there and finding a good price. Run the numbers yourself, figure out how long you can reasonably stay in one home, what fees and other expenses will be included in the loan, what rates are for a non 20% loan, what taxes and insurance would be. Its a lot of variables, but it takes a couple years to build up enough equity that you wouldn't have been better off in the stock market with an index fund. Be careful, do not do this based on emotion, entitlement, momentum or perceptions. Use the cold hard facts.

Guest's picture

You are operating under the assumption that you deserve a house right now because you are you. Your reasons are just emotional justifications.

I assure you that we are not at the end of the economic fall; don't be fooled into buying because costs are low right now or because some slimy real estate agent wants to make money off of you. And, once we start to recover, do you really think housing prices will rise as astronomically as they've done over the past decade? If you think that's the case, can you also tell me how the US will provide jobs to the millions left unemployed from this mess? If nobody is earning money, nobody is buying houses. Unless you think a new economy is going to show itself in the next year or two, I don't think you have much to worry about when it comes to housing prices in the near future.

Honestly, not everybody should be a homeowner. This is being made perfectly clear with all the foreclosures. Stick to sound economic principles, don't let emotion rule you, and try to get through this mess without losing your head. You are far luckier than millions of people out there; think about that for a while before you jump into something for which you may not be ready.

Guest's picture

Between the tax credit and the low prices, I say go for it. You will be able to negotiate the price down even more that what they are asking.

Guest's picture

My wife and I were in the same boat as you in May. We only had 13%ish to put down. Technically we could have put down more, but that would have sapped our furniture and emergency funds (a no-no for us).

What pushed us over was that the seller is basically paying the PMI. I probably still would have done it with the price and rate we got.

Guest's picture

Those reasons are exactly why my boyfriend and I decided to buy a house in April. We have a good emergency fund, and we can still afford the house off of one income if need be. The only reason we didn't have 20% yet was that we've only been out of college for a year. (Ok, I'll admit we could have saved up 20% in that year if we made a ton of sacrifices, but you get my point). I feel ok about our decision.

Guest's picture

My husband and I are also trying to save our 20% down payment for a home. We also may not be able to save this full amount, yet I think we still will be able to purchase one by early next year. I have a couple of thoughts on why paying less than 20% down is sometimes OK:

1.)For many people, 20% may not be difficult to come up with if you live in an area where you can actually find a home under $110,000. I DO NOT LIVE IN AN AREA LIKE THIS, DO YOU? If you live in Southern CA for instance, it will be a long road to making it to 20% of $250K - $300K (a typical starter home price)

2.) How much are you paying in rent? Are you paying way less than what a mortgage will cost? My husband and I figured that we are already paying MORE than what a mortgage will cost on a $250K home. So even if we can't make the full 20% down payment, we will still be paying the same or perhaps less than our current rent.

3.) I fear that waiting until I have my 20% down will actually negatively affect the overall goal of purchasing a home. Again, I live in CA and homes go up and down like a roller coaster. Right now, my husband and I can actually AFFORD one of these homes. If we wait until we have 20% or 30% down, we may again be in a catch-22, meaning by that time, homes will be back up over $400K and we again won't have the money nor be able to afford the mortgage. Is this what you are also concerned about?

I guess my main point is LOCATION, LOCATION, LOCATION. If you live in an area where housing prices have historically remained stable and affordable, maybe you can wait it out. If you live in an area like Southern CA or another volatile city, I would say the sooner the better.

Hope this helps-
Little House

Guest's picture

And only a few months ago, people were refinancing left and right at rates below 5%. Over the life of a 30-year, $250,000 mortgage, you'd pay $261,000 in interest at 5.5% vs. $410,000 at 8%. So the rate matters quite a bit. : thanks a lot

Guest's picture

Looks like that link to wikipedia given in the "We're talking historically low." is actually the prime rate rather than the 30 year fixed rate. THe 30 year mortgage rate will be higher than prime usually.

Guest's picture

And take everything a realtor says with a grain of salt.

Guest's picture
Seattle Rez

We live in Seattle, where the median home price is $350 - $400k. If you live outside the city, you make up the difference in gas to get around. $70k in cash? Really? If we did nothing else for 6-7 years, we MIGHT scrape that together.

We found a great little turnkey house in the city for $284k and put 12k down. We have ZERO other debt and can afford the mortgage on one income.

You can always drop the PMI once you have 20% equity and refinance - you can get there pretty quickly by accelerating principal payments every month.

You have to go with your comfort zone. If I lived somewhere where houses were $100k, I would absolutely save 20%. It's not always so one-size-fits-all.

Guest's picture
some guy on the internet


Don't do it! If you do, all your metachlorians will lose their power and all shall be lost!

That's what happened to me and now I'm a ton ton herder on Hoth. We don't have seasons here. Cold all year long. It sucks.

Mind your metachlorians!

Guest's picture

We bought our house three years ago with 10% down. This means we split the cost of the house into two loans--a conventional mortgage and an equity loan--in order to avoid PMI. I'm pretty on top of our finances and don't regret this one bit.

I suspect that a lot of people who are telling you not to buy are not renting right now. Renting sucks. We bought a brand new home under warranty. We have done extremely little to the house--not even much paint. We certainly didn't go out and buy furniture or do any "improvements." However, we are paying less for it than we would to rent. We knew that buying a new home meant that we wouldn't see a lot of appreciation value, but we also knew that we were young and financially disciplined. We've been paying down the equity loan aggressively. When we got to sell, I will be happy if we end up if we coming out ahead if we compare what it would have cost to renting something the entire time. Since we're in a fairly stable market, we will come out a bit ahead of even (including property insurance, etc.). To me, this makes it a better idea than renting.

That said, I also went into the homebuying process with no expectations that this was an "investment" like my 401(k) or something. It's not a depreciating asset like a car, but I do think of my mortgage payment as something I pay in order to live in a place I like that is close to where I work. Not every decision can come down simply to numbers, and I think as long as you realize that and are aware of what you will end up paying, then it can be a good idea.

I think there is a lot of skepticism about home ownership out there right now. But just because others didn't think through their financial situations very well doesn't mean that you won't. I'd run the numbers and evaluate for your specific situation.

Guest's picture

I checked with my realtor twice and he assured me that the area I was looking at was pro-metachlorian. In fact, I remember reading that as a requirement on my pre-approval letter from the bank. I don't see the PMI - metachlorian connection though. I only put 7% down and I can my telekinesis skills are still intact.

Great article keep it up!

Julie Rains's picture

I know 20% down is a good idea but I think that the bigger questions are 1) whether  you are rushing the process just to get the tax credit, low interest rates, and low prices and 2) whether the house is affordable. Rushing to make such a huge financial decision is never a good idea but if you can readily afford the payments - that is meet all your obligations after buying, and you have stable jobs or could replace an income fairly easily or afford the house with one income, then the amount of equity is not so relevant. PMI is no fun but it doesn't last forever. You have probably already done this but it wouldn't hurt to run the numbers under various scenarios including no incentive and no PMI. 

I consider myself somewhat conservative as far as mortgages and am getting ready to pay mine off this month but put down less than 20% on our first house. It's useful to look at the entire picture, and also public records to look at tax values, sales histories. etc. Best wishes on your decision (whatever it is).

Guest's picture

I think this an absolutely terrible plan. House prices aren't going to shoot to the moon in a year, and even if they do - throwing out common sense to try and time the market and buy before you are ready is a mistake. I was a renter for 20 years and totally disagree that "it sucks." - if you let yourself buy for a whole bunch of emotional reasons - renting sucks, the markets is slow, OMG I'm going to miss the boat! - you are likely to make a big mistake.

I live in CA, and sure it took a long time to save 20% - but I am in no danger of now losing my house. I have equity and a decent mortgage. Others who convinced themselves that they could bend the rules are not in nearly as good a position as I.

You are basically doing the same thing everyone did for the past 3-5 years - buying on a wish and a prayer and not much stake - and convincing yourself that for you it will be OK. Well, maybe it will. But really - this is an emotional decision and a gamble, and the reasons are pure gut. It's not sensible.

Guest's picture

"I live in CA, and sure it took a long time to save 20% - but I am in no danger of now losing my house. I have equity and a decent mortgage. Others who convinced themselves that they could bend the rules are not in nearly as good a position as I."

Diane, I wouldn't be so smug. Unless you're independently wealthy (and no snark, good on you if you are), the MAJORITY of people are never immune from losing their homes. I read a sad tale just the other day about a woman who lost her home 28 years into her mortgage after a run of bad luck (unemployment and medical issues).

We have a modest mortgage, and if we've learned anything in this whole housing mess, equity is as fleeting as the wind.

Carlos Portocarrero's picture

Wow, there are some great responses here. Thanks everyone!

Here are some more details on my situation:

  • I live in Chicago and the areas I'm looking at are typically stable, but they have come down over time just enough to fall in my grasp.
  • My wife and I have zero debt, so we're happy about that
  • We would be paying A LOT more than our rent. Around $300-$400 more. So that's a tough pill to swallow
  • Of course this is emotional. It's easy seeing it on TV/news and criticizing, but when it's your money and your potential living space, my emotions are all over the place!
  • We would be getting two loans to avoid the PMI
  • Our emergency fund would basically become non-existent, since it's also our down payment fund (horrible idea, I know). So this is the big thing holding me back. We would have a tiny cushion that a broken appliance could eviscerate altogether

On a side note, I got three emails from my broker today pushing me to give him an answer on the current place we're in love with. Which I do NOT like, but that's his job I guess.

Most of you are making great points, and it's really reinforcing that little voice inside me that has been watching me fall in love with these places and saying "Hmm...I don't know about this. It doesn't feel right."

I know the Obama deal is no reason to jump into anything, but the emotions are tricky to deal with!

The Writer's Coin  |  Follow me on Twitter

Guest's picture

We would be getting two loans to avoid the PMI

My eyebrows raised at this. I didn't think PMI was a function of the loan amount -- just of total cost vs downpayment. (I could be wrong, though -- in any case I say talk to a financial advisor or mortgage specialist to make sure. If you have already, then I guess it's just different in the US than in Canada.) And doesn't it complicate things unduly to have two mortgages at once, instead of just one?

I understand your antsiness fully, btw -- I too would LOVE to stop renting. But until my savings account hits the magic number, I'm waiting.

Guest's picture

"On a side note, I got three emails from my broker today pushing me to give him an answer on the current place we're in love with. Which I do NOT like, but that's his job I guess."

He's probably worried that he won't make his mortgage this month.

Guest's picture

I bought my place with 10% down about 6 years ago. I now have about 25% equity. I was nervous at the time about not having 20% down, but I made sure I wasn't buying above what I could afford in terms of the monthly payment. Historically low interest rates, a housing glut, and an $8000 tax credit (which saves you an additional ~$10,000 in interest payments over the life of the loan at 6%) is pretty hard to pass up.

Guest's picture

Maybe you have some funds you haven't considered.

Anita Bell (an Australian finance writer) has some awesome instructions for finding emergency cash. Emergency, in that you could probably only do it once every 5 years, and it really strips your resources to the bone. But if you are determined that this is a once-off opportunity that won't come along again, maybe it's worth it.
I can't remember all her steps, but the biggest ones were:
- sell off your stuff, especially a big ticket item like a car.
- change jobs (if you think you'll get a decent leave payout).
- Look at your super (sorry, retirement funds for you americans).

It's not going to get you the whole deposit, but it could pull you across the line if you're close.

Guest's picture

Listen to the little voice and wait until you have the money. It may be better to pay a bit more in the long run knowing you're financially sound, than throwing all in now with the risk of an emergency taking you and your dream out.

Do you know how much it would take to cripple your finances if something happens after you do this? Do you know how long you'll be financially vulnerable while you recoup your emergency fund?

What about the house itself? Have you accounted for all of the additional expenses? Insurance, taxes, neighborhood associations, utility hookups, transportation, schooling costs, etc...

And have you thought about all the things that may need fixing right away? Older homes (even just a few years) are notorious for having at least one money-sink problem, and they way your agent is pushing, he/she may not be entirely forthcoming for fear of losing a sale.

What about your blog? How would your readership react if you break one of the cardinal rules of personal finance, and then get hit with a financially crippling emergency?

It's your choice, but from personal experience I can tell you throwing every last dime you have at something, even if it's your dream, is just inviting disaster. There are far too many ways to lose everything. You need know you've got something to rely on just in case, not hope everything will be fine until you're ready to handle it. Don't let emotions be an excuse to do something you know is foolhardy. Listen to the little voice.

Guest's picture
Tyberius Casteneta

I say buy it!

There are thousands of people out there who live well beyond their means.

We live in a country today that is on the consumers side.

We as consumers can spend beyond our means without fear of losing our quality of life when the bill comes.

We can depend on the "rich" to pay for our short-comings.

I'm glad I voted for hope and change.

Obama Bless America!

Guest's picture
Tyberius Casteneta

Did I say thousands, I mean millions.

Guest's picture

That yearning for a home has such a strong pull! I was with you (mostly) until you said you would be using up your emergency fund. Yikes! Having a house IS an emergency! (I'm NOT kidding.) You never know what is going to go wrong next. There's a reason they're called money pits.

Take a deep breath and really, really think about plan b, plan c, plan d and all the others when (not IF) things go wrong. If you truly think you can handle it, then godspeed!

Guest's picture

I agree with Julie - it's the affordability of the mortgage payments + other costs that are relevant. The DP doesn't really matter.

I hate to be one of those incredibly annoying bloggers who refer to one of their own posts but I just have to do it.... :)

and since you mention a pushy real estate broker..

Guest's picture

Look. You said, "The thing is, these are not financially sound times. "

So why in the world would you want to tie yourself to a mortgage right now? Keep your money liquid. Keep on saving.

Unless you have a massive emergency fund and no other debt, I'd strongly encourage you to just sit tight. Yeah, interest rates and house prices might be worse in a few years.

But that's not the point.

The point is: Buy a house when YOU can afford it. Can you seriously afford it now? Or do you just want it really bad?

Don't forget, we got into a big financial mess in part because people were getting into houses before they could afford them.

Guest's picture

I posted my first comment before I read the others. I see that the author clarified some things, and now I've gotta say DO NOT EFFING DO IT!

I'm a renter as well. Earlier this year, my husband and I caught the, "wow, $8,000!" bug. We, too, would need to exhaust our emergency fund to get into at house.

It wouldn't even be that great of a house, and it would be a LOT more than we're paying now. Property taxes in Pittsburgh are high.

We'd only be able to save $100 or so per month, and that's living extremely lean. We'd be asking for trouble, basically.

You said you like where you live. Stay put. Keep on saving. Do it when it actually makes financial sense.

Guest's picture

i would prefer that you wait. i have no financial calculations to make to see the logic behind this but the age old proverb "good things come to those who wait". it makes absolutely no sense to get yourself in a hole and spend a very long time in the future trying to get out. that's my piece
PS; i rent out and it is very much stress free

Carlos Portocarrero's picture

Well, our real estate guy wanted an answer last night on this one place he was pushing and he got an answer: no.

We're going to keep looking but it feels like we're be renting for at least another year.

The Writer's Coin  |  Follow me on Twitter

Guest's picture

There are several factors in play now that make it very attractive to buy a home; low interest rates, lower prices due to the housing bubble in some areas; and the $8000 tax credit. Of course, you have to own a home and should expect to live it in for at least 5 - 7 years. If you only expect to be in a home for a couple of years, then rent.

Buying a home does one thing for you that renting cannot do, it fixes your monthly housing expenses with a fixed rate mortgage. Taxes and insurance can change but the primary component of the monthly mortgage payment is now fixed for 30 years (and then it's gone).

Don't overbuy on the home and put 10% down keeping the other 3% for cushion and emergency funds. The PMI will drop off when the loan is less than 80% of the home value. You can reach this by pre-paying the principal and/or home appreciation.

If you are planning to live there for more than 5-7 years, then buy a home.

Guest's picture

You made a good call not buying the house, since it would raise your expenses considerably & wipe out your savings.

We bought our house 13 years ago for 3% down ($2,400 on an $80,000 house). I'd do it again in a heartbeat. We refinanced twice to get the interest down & get rid of the PMI and were able to reduced the term at about the same payment each time, so it'll be paid off in about 11 more years (without paying ahead).

The increased monthly expense and fixing things that break are what will wipe you out. If you lose your job you could lose your home whether you rent or own. Ending up upside-down in your house is only a problem if you're trying to sell it. If you plan to stick around for a while and can find a great deal on a house you like that won't make your monthly expenses too onerous, buy it. But leave some money in your savings account, because you're going to need it, and make sure there will still be money in your monthly budget to be able to keep putting some away.

Guest's picture

My hubby and I are in the same boat you are and we are going for the house. The tax credit will add to the emergency fund and the mortgage, taxes, all that stuff is LESS then we pay in rent. Plus, I can't leave where I rent anymore because hubby is not allowed to park is vechicle there-and has to work.

As long as you go for with a sound plan and backup plan-as well as not buying a house over your head it is a good time to buy. We chose the price based on if one of us loses a job we can still afford on one income.

Good luck to you-I wish you well!

Guest's picture

We live in a housing included with work situation. Eventually this will end and we will have to consider our options. Buying usually involves purchasing appliances, lawnmowers, weed killer, stuff like that. It always involves upkeep. All those nit picky things are included with any decent apartment rental.

Another strategy for home ownership is to purchase a much smaller place and gradually upgrade. Or start with a less conventional space. Artists living in converted factory lofts come to mind. (I've known at least five.) A Pittsburgh cousin was able to purchase her first home, a small storefront, because of initiatives geared towards artists, (to jump start the neighborhood gentrification process). She lived and worked downstairs, and rented the top floor. I know another couple that live in an old schoolhouse. Since you're near a big city, do you have similar options?

Guest's picture

I live in New Orleans, and my fiancé and I were thinking of buying a house. Then I found this calculator.

I plugged the numbers in, and it turns out, that contrary to what everyone says, buying a house is more expensive than renting, at least in my situation.

If you are looking to buy a house based on financial reasons, use a calculator. If you want a house for emotional reasons, there is no way that higher costs will convince you that it is not a good financial idea.

By the way, if you are looking at a condo in Chicago proper, remember that condos there come with HUGE association fees.

Guest's picture

I did everything WRONG 28 years ago ! and I would do it again in a heart beat.Interest rates were 18-19%, home inspections were rare, we had no savings-no money of any kind and no one to help us.Now at age 55 we are almost debt free, house paid off at age 50,paid for daughter's college(undergrad and 1st masters) wedding paid, house done alittle at a time over the years.We are happy and sane(sort of) what I learned about myself along the way was guessed it humbling.And owning a house hmmm I don't know but owning a home..........PRICELESS

Guest's picture

I'm currently renting a room for 400 a month. My income is about 26k a year but the banks only count my main source which is 24k a year AND I have a 407 dollar a month car note. Despite my limited means, I've built a credit score of over 740 in less than 4 years.
I'm also a Veteran so qualify for a VA loan, already pre-qualified for a home mortgage of up to 55k. In Florida you can actually buy 1/2 a duplex. Finding homes in my price range that will meet VA guidelines is difficult but not impossible. A VA loan means no PMI and I find I can buy a 2 bedroom 1/2 duplex for 48k.
the monthly mortgage payment including taxe3s and insurance will be about 400 a month. There will be the increased costs of utilities and maintenance (I can do most of the labor myself!) But I can rent out the extra bedroom and this will actually cut my monthly housing costs. Every situation is different. In my case I should be able to make an extra payment on the principal for the first 10 years and still get a sizable tax deduction. There is also a large Hospital and research facility being built within 5 miles of this location so with any luck I should be able to rent that place out for a serious positive cash flow in at the end of those 10 years and use that equity as collateral for another home loan.
The reason I'm sharing all this is to show that taking advantage of the current housing market CAN be extremely advantageous. I'm also willing to put up with sharing my space to further my financial goals. Just make sure you understand what you're getting into before making the decision lightly. Thankfully I have an emergency fund that will allow me to survive for 3 months with no income or up to 15 months without collecting rent on the spare bedroom.
Have you considered buying a house that would allow you to rent out a part of that space? Is the area you are considering buying one that looks to have a better than average chance of appreciating? Those are just 2 questions that shaped my decision. Your considerations may also include commute time, area schools (My daughter is grown and lives in another state) and others. Make sure you make a list of ALL the pros and cons before making your decision!

Guest's picture

You've said nothing about how much you WILL be able to put down. How much do you have saved up?

Guest's picture

I meant to say that as a single 38-year old a while back, I put down 45% in cash becus i was afraid of losing the house. That was about $95,000 on a house i bought for $209,900. I'm sure glad i did it that way becus i'm still single and i have never had anything but a modest, even low, salary, from making as little as $50K about 4 years ago to a high of $85K 10 years ago. Better to be safe than sorry.

Guest's picture

We just bought (2 months ago). We had 10% down. We got 4.85% on a 30 year fixed rate mortgage. We have a plan to pay the mortgage off early.

The real reason we bought though, wasn't the money. It probably would've made more financial sense to rent for a few more years.

The real reason was that we were moving to a new city for a new job, and we wanted to find a place to settle down in. We were and are willing to pay the premium to get that. We were tired of apartment living and wanted a place we could garden, and with a yard for our kids.

We easily afford the monthly payments, and even if we don't pay it off early, it's something worth spending on for us.

Everyone buys things that don't contribute to their financial well being, it's called enjoying your money. As long as you are meeting your financial responsibilities, I don't see a problem with that even if you are paying more for it than you would have otherwise.

Guest's picture

Having 20% to put down is NOT the most important consideration for buying a home.

As a banker we consider strength and stability of income far above ability/willingness to put 20% down. If you can afford to buy and still have a debt-to-income ratio under 40% (including taxes and insurance), then that's a big check.

Credit score above 700 is another big check. It will get you the best rates and proves you can handle the responsibility of debt and regular payments.

Liquidity is the final factor. We'd rather see you have a few months of savings left in the bank AFTER closing than put down a 20% downpayment. We consider a 10% down payment to be "strong" for first time buyers. If you're buying a second home or investment property then 20% is "strong" and preferable.

If you are ready to buy and know you want to stay put for 5 years or more then DO IT. It's one thing if you have NO downpayment, but if you have 10% then quit worrying about it and just do it.

Xin Lu's picture
Xin Lu

Glad to know that you said no for now.  If the broker is really pushy it could mean that the market really isn't all that great and they are sort of desperate to sell homes.  Anyway, like many others said, the recovery would not be super fast so you have time to look and decide. 

Guest's picture

Ok guys, for all y'all who are even thinking about putting only 13% or less down, do it for us and DON'T DO IT!

I've made it an official post here: "Property Makes People Think Irrationally"


Guest's picture

If you buy a house without an emergency fund, you are foolish. Houses are money pits. I love my house, but I had all kinds of expected and unexpected costs my first few years. It's not merely a question of mortgage vs. rent - there is so much more you will find landing in your lap once you own. Is it worth it - sure - I love my house. But if I had no emergency fund I'd have a lot of debt now, or I'd have sold it already.

And if you buy a car because you have a bad parking situation, as someone suggested they wanted to do, that's insane. I parked on the street in San Francisco for 14 years - never had a parking spot, and was able to live my life just fine. Acquiring major debt to accommodate a car is the wrong priority.

I am just shaking my head over this. This idea will trap you if you let it.

Guest's picture

"Our emergency fund would basically become non-existent, since it's also our down payment fund (horrible idea, I know). So this is the big thing holding me back. We would have a tiny cushion that a broken appliance could eviscerate altogether"

Nooooooooooooooooooooooo! ABSOLUTELY NOT! Do you know how insane this sounds? Not just "horrible", INSANE! Buying a home is NOT an emergency! So, why the heck would you even consider this?!?!?! You need your emergency fund EVEN MORE if you have a house!

Really, you need to stop worrying about missing the boat and start thinking about what is best for you and your family -- and this does NOT sound like it at all. People allow themselves to be seriously conned because they're afraid to miss opportunities. Please be smarter than that!


But just out of curiousity...

"We would be getting two loans to avoid the PMI"

How does that work? Wouldn't you have to pay extra closing costs? Sounds kind of shady to me.

Xin Lu's picture
Xin Lu

The two loans thing is pretty common.  Basically you get one worth 80% of the cost, so no PMI, and then another one worth 10 to 20% of the cost.  The second one usually has a higher interest rate.  If you do an 80/20 that's basically 0% down.  A lot of homes purchased during the bubble were purchased this way. 

Guest's picture

You know deep down it's not a good idea, otherwise you wouldn't be posting this in the first place.

Don't. Do. It!

Guest's picture

How in the world is the emergency fund = to down payment for a new house? It would take one accident to ruin the rest of your lives and lose everything.

In my eyes, you have no down payment... you know... which kinda started the situation we're in now.

Guest's picture

If this is your first time buying a home, you should really consider the FHA Loan. With FHA all or part of your down payment can come as a gift from relatives, employers, or organizations, and often the amount of your down payment is less than 20%. Plus, if you decide to sell before you are done paying it off, it is assumable and can be entirely passed off to the purchasing party. You should really consider this if you have less to spend than required for a conventional loan. I highly highly recommend looking into this option for your particular situation. There is a great article on the benefits of FHA loans at

Xin Lu's picture
Xin Lu

With an FHA you also need to pay PMI for 5 years even if you have 20% down. 

Guest's picture

My fiance and I are in this same position deciding whether or not to buy our first place. We were pre-approved for an FHA loan, but had no idea that most Realtors do not know what places qualify for FHA and which ones don't! We were shown about 15 places without knowing that more than 1/2 of them were not FHA approved (one had just been scratched from the FHA list just the previous month, but showed as FHA approved still on the government website).

We fell in love with a place not FHA approved and went through hell with a bank offering a program with 3% down. Its been three weeks and they still haven't contacted us as to whether we're approved or not. In the meantime we heard about a 0% down loan with a really good fixed rate (we and the building we want to buy have to meet a LOT of strict requirements - including having several months of liquid assets) program that we got approved for right away. The only problem now is getting the condo building approved for the loan.

Never knew that all of this would be so complicated!

Guest's picture

6 years ago, I bought my house with 10% down and a 5% interest rate (not interest only) 30 year fixed mortgage.
I considered everything or so I thought, but not the fact that property taxes would increase ( I live in NJ) and PMI would increase. Throw in a second child that was born 2 years after buying the house, things that would need fixing and the fact that I would soon be earning $30,000 less and suddenly I realized I could not afford the house.
I sold the house and was lucky to break even. But had I waited to have 20% and some cushion, I would still be in the house.
In the end, you are going to have to sit down, analyze your pros and cons and decide.
At least, you are doing the right thing by asking everyone to chime in. This would greatly help you.

Guest's picture

We're retiring in 5 yrs and need to get a place for our dotage. We only have 6% down (condo is 250K, and we have plenty in our retirement accts, but the company won't let us access that till we actually retire).
We're stymied by the fact that we have to call this a second home since we are going to keep working till retirement in one town but the place we want is in another town 300 miles away.
That means we have to come up with 20% down, we don't get to use VA or FHA or tax credits for first timers, even tho we are VA firsters...
The prices are really down right now in So Cal, but there doesn't seem to be a lot avail in the area we want. Dilemma - beg borrow or steal the remaining 4%, or wait till next year and hope the prices don't leave us in the dust (remember, this is So Cal)

Guest's picture

Before you put down an offer could you take a minute to read the tips at this site, I think you'll find a lot of helpful advice. (and maybe you can enter one of the contests too :) )

Guest's picture

Hi Carlos,

The real reason to wait until you have 20% is that without it, most lenders require you to pay mortgage insurance if you're buying without 20% down. Mortgage insurance will up your monthly payments significantly. In addition, I've heard many reports of people having a really difficult time getting their lenders to stop charging the insurance -- even after they've managed to pay down 25 or 30% of the capital.

I say wait a year, and save the money. In the long run, a 20% down payment will save you a significant quantity of cash over your mortgage repayment plan. I suspect your judgment is being clouded by the sense of urgency that a low-cost housing market can bring. I promise -- this time next year, you'll still be able to find a house that you love.

Carlos Portocarrero's picture

For the record I did eventually (finally) buy a place. It took a long time but we both love our place and from a financial perspective I think I did the right thing. More on the whole experience here.

Guest's picture

We bought our house in 1985.....anybody remember those days? Our bank was offering 13% variable rate home loans. A new nuclear power plant was being built in our area which brought in enough big income wage earners to fill every nook and cranny. Rents were crazy and new homes were bought as soon as the contractors could get them built. We were in a mobile home and splitting out the seams with two babies. 25 years later we are still in our home and I wouldn't have changed a thing!

1 - this house has only been for sale twice in the 75 years it has existed. We would never have gotten it if we hadn't jumped fast when everyone else was hesitating. It is part of us, our community, who we are.

2 - as our original loans were being negotiated, the regional savings and loan announced 8.5% rates - unheard of until the week we were pinning down our loan. Not too long after that the nuclear power workers moved on, leaving a housing slump that has never been recovered from in this area.

3 - at 1500 sq feet, the house became extremely small when the kids were in middle and high school (and I had a home based business), but now they have their own homes and it is again the perfect size for us. We plan to be rest of our lives. We can afford it.

4 - we have refinanced it two or three times during the 25 years. Once adding $12,000 for a rural water line (necessity), once because of bad credit card decisions, recently again because of a critical accident that caused a job loss. Our home has been our partner in life, sheltering us in more ways than one.

5 - we have six more years to pay it off. I can't describe what a good feeling that is in this economic downturn, and huge life goal accomplished day by day.

Just thought I would add some historical perspective! Its an investment in your family, the stability of your future and your childrens' future. My children talk alot about "coming home" for things. They are rare in their generation - to still have their childhood home to come back to - our safe place.

Guest's picture

Interesting everyone who recommended renting over owning citing repairs, taxes, insurance and interest costs. Do you honestly think that rents don't go up to include all these things that the landlord passes on to you, the renter? At least a mortgage never goes up.......and as the interest is paid down, the monthly payments also go down. And it's an asset as well.