6 Mos. and % downpayment

[chpxiii]

I've always been curious. I know it is a good idea to have atleast 20% down payment for a house. I get that.

I also know it's good to have 6 months savings.

My question is, is the 6 months savings IN ADDITION to the downpayment? Or is the 6 months *part of* the down payment?

Thanks! I've always been curious about this. I'm starting to save up for a house.

[B12]

Hey chp

You don't necessarily need 20% down if your salary supports the loan to value ratio. To be safe, and generally speaking, if you are putting 10% or less down, your payment including taxes, insurance, PMI should not be more than 28% of your monthly salary. The more you put down, the safer you are of course. (This is not taking into consideration your other debts)

As for the savings also known as "reserves"..........after you close on your new house, you should have IMO at least 3 months worth of payments in the bank, ideally a 6 month cushion.

So, if something happens, you can pay your mortgage until you are back on your feet again.

So, to answer your question, your down money and reserves are two separate savings.

BTW, be wary of mortgage lenders who tell you that higher ratios are no problem, or no reserves are needed per the lender.

They might be right, but, they are out of the picture the minute you cannot pay your mortgage.

I am all for creative financing, have used it many times, but I tend to be more conservative in times like these. Calculated risks are okay. Blind risks are troublesome. No one has any idea on what the future of the mortgage industry holds.

If you plan to buy in this market, it is better to put 10% down and put the other 10% in your reserve account.

When the market is hot, there is less need for this reserve. But, in today's market and economy, I would recommend that no one purchase a house unless, after closing, you have a good amount of money in reserve.

[MTG_BANKER_OH]

I've always been curious. I know it is a good idea to have atleast 20% down payment for a house. I get that.

I also know it's good to have 6 months savings.

My question is, is the 6 months savings IN ADDITION to the downpayment? Or is the 6 months *part of* the down payment?

Thanks! I've always been curious about this. I'm starting to save up for a house.

You have to figure out what is best for you. In general you are better having money in the bank rather then a large down payment especially if you know how to invest your money properly. Money in the house does not have a rate of return, your home will appreciate/depreciate at the same amount no matter how much equity you have.

It is really just personal decision and what you feel more comforatble doing.

[HHM]

From a general financial planning perspective...

The 6 months of reserve is IN ADDITION to any down payment.

Even though the mortgage market is tightening, the 20% down figure is somewhat antiquated, I wonder what the statistics are as to what percent of home purchases in the last 8 years have the buyers really put 20% down (I suspect not that many). But I believe most people should strive to put 10% down, and do an 80/10 and the rates and fees are still very reasonable for those with good credit.

[tradewiz50]

Due to this credit crunch we are currently in. Lenders on there no doc loans have raised the down payment 20% to 25% respectively with a middle credit score over 680, to qualify.

Interest rates on these loans are still ranging from 6.50% to 8.25%. Lastly they like to see a 6 month reserve as the OP questioned.

[chpxiii]

Thanks everyone! I certainly appreciate the input. I now understand that the reserves are in addition to any money put down. That's a question I've always wondered about.

My only other debt once I'm discharged is my student loans. I'm anticipating a payment of almost $1,000 per month. Don't know yet, I need to call and see. Currently, I make $80,000 / yr. (I just started making that salary in August so it's not like I've been making that amount of money for a long time.) Considering my current finances and sharing bills and rent with my boyfriend, my monthly rent/utility/food is very very cheap. (I pay less than $400 / month in rent!) Essentially, I'll be able to live off of one paycheck per month (I get paid bi-monthly). So as you can see, I am going to be able to save a nice chunk of change in the next year.

I am looking at houses in the $100k to $150k range. I live in DFW and the areas I am looking in I could possibly get something pretty decent in an OK neighborhood for that amount. Not to mention, I was just looking at MLS listings and houses that have been on the market for over a year that were originally listed near $200k are now below $150k. So I'm hoping when I start looking I'll be able to get something pretty decent at a reasonable price.

My credit is not so great. As of Sept. 27th, they were: Equifax: 609, Experian 638, & Transunion 610. And I found out I have a collections on my report and another derogatory that I didn't realize were there. I will, obviously, work on correcting this in the next year.

For the first time in my life - and after many discussions with the boyfriend who is my #1 personal cheer leader! - I finally have hope that maybe I could be a homeowner. I'm 39, and especially considering how real estate values had been so inflated in the last nearly a decade and with my crappy credit, then filing BK, I never thought I could ever be a homeowner. I would really like that. Now it seems like a possibility for me.

PS: I'm not looking to include the boyfriend's pay or any monies he might give me. I'm of the opinion that a couple should purchase a house with a mortgage payment of what the person who makes the least in the relationship can afford. And since he and I are not married, I am only looking at what *I* can afford.

[HHM]

Due to this credit crunch we are currently in. Lenders on there no doc loans have raised the down payment 20% to 25% respectively with a middle credit score over 680, to qualify.

Interest rates on these loans are still ranging from 6.50% to 8.25%. Lastly they like to see a 6 month reserve as the OP questioned.

But who cares about No Doc loans? Why pay a premium for a loan in order to not turn over proof of income...(granted, for some people, no docs are necessary, but they are not the norm nor are they considered a "market" loan).

[chpxiii]

What is a "no doc loan?" I'll go ahead and do a search and learn about them, but if someone could explain that in layman terms it'd help me gain a better understanding.

[HHM]

"No Doc" is shorthand for several different types of programs and you will find plenty of info on the web. But in essence what it means is that bank does not require you to "prove" your income with pay stubs, tax returns, bank statements etc. (but they ALWAYS check your credit report)

The most common form of a No Doc loan is...

Stated Income: basically you tell the bank how much you make, and the bank takes your word for it. (this is common for those that don't have "steady" income, who rely solely on commission, or small business owners).

In any event, you pay a premium in the form of a higher interest rate (from the bank's perspective, its a risk premium). However, for the credit challenged (i.e. recent Bankruptcy), No Doc loans are NOT the way to go. In fact, I'd be surprised if you could even get any bank or broker to even discuss a No Doc as a viable option...and, most ethical brokers will attempt to talk you out of a No Doc.

[chpxiii]

HHM, gotcha. Thank you for responding ... and so fast too!

I have a lot to read up on buying a home and home ownership. I do have time anyway. ;)

[B12]

Hey chp

Wow, you sound like you are really getting on your feet financially. How wonderful!

IMO, with the price of the house you are considering, a nice FHA loan would do you well. Easier with the BK and you are well within the loan caps. With your salary, I would not be afraid to do a 3-5% down payment. You will be way within the qualifying ratios with room to breathe. No PMI with the FHA loan, but there is a mortgage insurance premium, funding fee. In a good or bad market, you can ask the seller to pay for some items or just ask for cash back at closing.

A straight no doc loan is a "no documentation" necessary loan. It is good for people who have a business and find it hard to show income after business write offs. Depending on the lender, you need as little as 10% down, most lenders require 20-25% down. You don't even need to disclose any income. The theory behind this is that if you foreclose on your mortgage, the lender can quickly sell the house for 75% of its value and be okay.

Obviously, with the declining market, lenders are more careful now.

A full doc loan is where you disclose everything and a stated income loan was just explained in the above post.

With stated and no doc, you need excellent credit.

Looks like your home purchase might be right around the corner if you can get a good FHA lender and get some cash in the bank for down money and reserves.

Lots of luck and I am so happy to see a person who is conservative with home buying even though they can qualify for more. Your future looks solid.

[chpxiii]

B12, thanks for the words of encouragement.

BTW, I smiled at your last paragraph. Here I am nervous at simply considering houses at $150k thinking I'm taking a HUGE risk with such a "large" amount! It did get me curious as to how much more I could qualify for.

I'm reading cindylynne's thread as well, her lendtree.com one. I like how she's sticking to her guns - I will be as well. I have a friend that when she went to buy a house they kept trying to push her into a larger mortgage because she could qualify for one. She was annoyed at the process. She finally said, "Look.This is all I'm paying for a house. Either work with me or I go find someone else." Of course, they worked with her. hehe

[JollyGG]

When we bought it wasn't the lender pushing us to a look at a bigger house payment. We got a great mortgage broker who was really on the conservitive side in financing for us.

However, I've noticed that realtors really like to show you what "just a little bit more" can get you. Our realtor showed us some great houses that were at the top of our price range and so we just adjusted the range we told him down a little bit.

Also be patient looking. We spent four months on our house search because I wasn't willing to pay more for what I wanted. After looking at several houses we figured out at exactly what we wanted and the price we were willing to pay for it and we waited until we found it.

[B12]

Good for you. After all, these professionals are sales oriented, just like the guy who tries to sell you the bigger TV.