How should I decide how much of a down payment to put on a home?
Should it be a percentage of my assets? Paying 20% down on the largest house I qualified for would require selling 74% of my liquid assets as of today, which are currently in stocks in my brokerage account. This amount seems high. But it could be considered less high because that same 20% down payment would be 26% of my total assets, meaning retirement accounts + my brokerage. I do not want to consider taking from my retirement accounts. If it helps, the same 20% down is about 87% of my annual pretax income.
Under ideal conditions, I would use the FHA loan to put down as little as possible, to minimize opportunity cost and capital gains taxes. PMI seems worth it vs. those two costs. However, that would increase my monthly payments, making it harder to meet my cash flow goal. I do not want to subsidize someone else's lifestyle if I move before the mortgage is up. Offers below 20% down, whether FHA or not, are more likely to be rejected as well. So putting down less than 20% makes finding a suitable property harder than it already is.
Are there other factors in this decision I have failed to consider? I feel this question is not a duplicate because of different personal and economic factors, specifically the openness to house hacking, and high valuations in real estate and stocks.
Background on my situation:
- Purchase a home to house hack, ideally multifamily.
- Partial motivation: diversify my investments out of equities. Feel free to question this motivation.
- If I move out before the mortgage is up, income should cover expenses (neutral cash flow). I need enough cash flow to cover possible future remote management.
- This means I am OK with paying up to market rent to myself while I live there.
- Exit strategy is long term ownership, house hacking or remotely.
- I am not banking on short term appreciation. I do anticipate a degree of long term appreciation.
- Pre-approved for FHA and conventional loans.
- Started saving for closing costs and down payment.
- Active home search.
- A larger down payment makes it easier to achieve neutral cash flow, but incurs greater opportunity cost and capital gains on sold equities.
- A smaller down payment makes it harder to achieve neutral cash flow, introduces PMI, and makes offers less likely to be accepted.
- Finding positive cash flow has been nearly impossible. House hacking is the only way it seems within reach, via paying myself below market rent.
- Stocks and real estate appear overpriced.
- Mortgage interest rates are going up.
- Mid 20s, single, no kids, good career.
- First time homebuyer, no significantly valuable property assets.
- All investments are very aggressive with small amounts in gold and bonds.
- No student loan or other debt.