Should I Put Down 15% or More on My Townhome?

Seeking Advice
1

I’m currently under contract for a townhome in a high-cost area priced just under $1.1 million. I’ve been approved for a 30-year conventional loan through a local credit union with a 15% down payment ($165,000) and no PMI. However, I can afford to put down up to 20% ($220,000), though I’d prefer to keep it closer to $200,000 (18.2%).

Here’s where I need advice:

  • With 15% down, my monthly payment is higher.
  • If I put down 20%, my payment drops by $360 per month. At 18.2%, the drop is about $230 per month compared to 15%.

I’ll still have more than six months of emergency funds in any scenario, but I’m trying to decide if it’s worth putting more down or if I should keep the extra money liquid. What would you do? Thanks for any insights!

2

Ask your credit union loan officer for a comparison between the no-PMI option and one with PMI. Sometimes the PMI option with a lower interest rate can save money overall, especially if you have a high credit score. Also, consider a No PMI ARM loan with a fixed rate for 5+ years. You can use the savings to either pay down the principal or invest. If your interest rate is below 7%, index funds might be worth considering, as they tend to outperform the cost of mortgage interest over time. Just a thought!

3

@Finley
Thanks for the advice! I hadn’t thought about the PMI vs. no-PMI comparison that way. I’ll look into index funds too. I’m not keen on ARMs, but I appreciate the suggestion!

4

It depends on what you’re comfortable with. What’s your interest rate? Personally, I prefer to keep more funds liquid, and you can always pay down the principal later if you want.

5

Baylor said:
It depends on what you’re comfortable with. What’s your interest rate? Personally, I prefer to keep more funds liquid, and you can always pay down the principal later if you want.

The rate is 6.7% with no points. I’m thinking of investing the extra $55k and making an extra mortgage payment annually.

6

@Tenzin
That sounds like a smart move! If you refinance later, you could also look into adding principal at that time.

7

Baylor said:
@Tenzin
That sounds like a smart move! If you refinance later, you could also look into adding principal at that time.

Good point. Hopefully, rates will drop in the near future.

8

@Tenzin
Consider doing 15% down for now and recasting the loan later if you want to lower your payment.

9

Loan officer here! How are you doing a conventional loan with 85% LTV and no PMI? Typically, PMI is required for loans with less than 20% down. If you can put 20% down, you’ll save significantly over the life of the loan—likely $150k in total cost compared to 15% down. My advice would be to go for 20% if you can swing it, as it saves you a lot in the long run.

10

@Bailey
Since it’s through a credit union, it might be a portfolio loan. They’re probably keeping it in-house, so PMI might not apply.

11

Zed said:
@Bailey
Since it’s through a credit union, it might be a portfolio loan. They’re probably keeping it in-house, so PMI might not apply.

That makes sense, but even then, paying the extra 5% upfront could save a lot in the long term.

12

Opportunity cost-wise, it’s better to put down as little as possible and keep the extra cash invested. Even with PMI, the returns from investing in something like index funds could outweigh the savings from reducing your mortgage interest.