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I am not too sure when exactly am I going to be buying the house. I can safely say that it would be between 2-5 years. However, I have no idea on exactly when. It all depends on market conditions and also on if I am able to move to a better place(I am planning to move from California to Texas or Georgia)

Now, I dont keep a lot of cash at hand(mostly 15-20k). Rest of the money is always invested(401k or personal stock investments) and I would like to keep it that way. Now, a lot of people start saving a lot of cast or hope that they will borrow money against 401k.

I am thinking at it different way

  1. Instead of worrying about 20% down, I can put 5% down since I am a first time home owner
  2. Once i know that I have a house I can cover those 15% in first few months and now I am just like other people who did put 20% down
  3. I did not break my 401k and I did not pull out my investments inadvertently.

Am I missing something? Would NOT putting 20% get me a bad interest rate or put me upside down on my loan? Am I missing any major consideration in my theory?

  • 2
    interest rates on mortgages are generally proportional to the loan to value (the lower your deposit, the higher the interest rate) - YMMV. – assylias Feb 26 '16 at 12:22
  • "Once i know that I have a house I can cover those 15% in first few months and now I am just like other people who did put 20% down" - maybe. If you are paying PMI, make sure you can remove the PMI by "covering the 15% in the first few months". – Joe Strazzere Feb 27 '16 at 23:50
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    Make sure buying a house makes sense before you do it. It is not always the better choice, as has been discussed many times here. My personal advice would be thst if you can't come up with 20% that should warn you to look very carefully at the alternatives. – keshlam Feb 28 '16 at 6:34
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The only problem that I see is that by not giving the 20% right away, you might need to pay PMI for a few months. In addition, in the case of conventional loans, I heard that banks will not remove the PMI after reaching 80% LTV without doing an appraisal. In order to be removed automatically, you need to reach 78% LTV.

Finally, I think you can get a better interest by giving 20% down, and you can get a conventional loan instead of a FHA loan, which offers the option to avoid the PMI altogether (on FHA, you have two PMIs: one upfront and one monthly, and the monthly one is for the life of the loan if you give less than 10%).

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