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We are buying a home in CA and we would like to know if there is either any financial benefit or disadvantage to a 15% down payment compared to a 20% down payment in our situation.

We are pre-approved for a 30 year fixed VA mortgage. We could put 20% down, which would get the mortgage payment (including taxes and insurance) down to an amount we can afford each month. Or we could put 15% down, put the remaining 5% in savings, and draw a little off of that each month to help make the mortgage payment.

PMI insurance is not a factor because with a VA loan we will not be required to have it even if we put less than 20% down. We will most likely sell the house in three to five years. Closing costs and agent fees will not be a factor when we sell the house because that will be covered by a relocation package.

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    I don´t know how transaction cost of buying a house are in CA - here in Germany this plan sounds like a guaranteed way to lose lots of money! – Daniel Nov 16 '17 at 8:57
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    "We will most likely sell the house in three to five years." Rent, instead, since the relocation package might get changed in the meantime. – RonJohn Nov 16 '17 at 9:27
  • @Daniel - In this case all transaction costs are being covered by a relocation company. – McLean Nov 17 '17 at 20:33
  • Those of buying and those of selling? – Daniel Nov 17 '17 at 20:47
  • Our costs for buying are covered. We would only sell in three to five years if we are in another relocation situation, which is likely, and then our selling costs would be covered. – McLean Nov 17 '17 at 20:51
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Go for the 20%.

Paying off debts as soon as possible, is almost always going to be the better investment of all.

In this case the choices you presented are either putting 5% of the total amount in a savings account(that will yield 1%,perhaps less according to this ) or getting that 5% not cost you 4% in interest added on top of the rest the mortgage.

Now, since you plan to stay there just 3 to 5 years, you really should consider if rent is a better option (cost wise as well since houses have state taxes and not only) or a safer option.(what happens if in 3 to 5 years we re in a down market and you NEED to sell that house to get your next one?)

Ps. If you need to get a 30 years mortgage with an as big as possible down payment to be able to afford the monthly payment, buying a house may not be the most financially sound option for you to begin with.

Ps2. You can get more detailed insight on the goings of buying/selling/renting houses on this excellent FI advocate right here.

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    +1 for your first PS. If putting 5% more down is the difference in being able to afford a monthly mortgage payment , OP should definitely consider if this is the right move financially. Other homeowner costs can add up quick (property taxes, maintenance, etc...) – ovaltein Nov 16 '17 at 13:30
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To a point, this is very situational, and without knowing your whole financial situation and personal preferences, it's difficult to be objective.

Benefits of putting 20% down:

  • Cheaper monthly payments
  • "Pride" of owning more of the house, and that you are less in debt
  • In the event that you continue to own the house long term (I know you plan on moving in 3-5 years), your total interest exposure is lower since you have borrowed less money
  • Not applicable for your VA mortgage, but for some, they would be subject to private mortgage insurance until they own 22.8% of the house rather than the 20% if they put it down initially
  • No risk of "accidentally" spending that 5% on something else

Benefits of putting 15% down:

  • You don't want to completely deplete your funds to buy a house. Repairs can be expensive and little things add up. From your comments, putting 15% down would make the monthly payments not affordable for you which is a precarious situation to be in
  • Likely (hopefully) your APR is less than 7%, so you could invest that 5%, and in theory it would outpace the difference in the interest you would be paying

  • You may have other expenses that arise, potentially in the 3-5 year period during which you move that you need the money for, mortgages are often the cheapest (rate) loans you can find, so if you deplete your savings and have to take on a personal loan, the rate will likely be higher

For what it's worth, I put 15% down on my house.

  • OP said specifically he intended to put the 5% in a savings account, investing it wasnt mentioned. – Leon Nov 16 '17 at 12:58
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    Agreed, but I'm suggesting an alternative. Given that OP is asking for advice, I imagine there is some flexibility with his options. – kchason Nov 16 '17 at 13:00
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rent, don't buy. The chances of the housing market being lower in 3-5 years is 50/50. There is a non-zero risk of the housing market dropping 10%, wiping out half the equity in a 20% down payment.

Look at the housing market cycles over the last 50 years. We are currently nearing a top. What comes 3-5 years after a top? A fall. California is especially prone to large fluctuations in market value.

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