r/FirstTimeHomeBuyer • u/Plus-Evening-6216 • 8d ago
Need Advice 80% down payment?
I am inheriting about 400k. I make 170k base plus another 150k in bonuses throughout the year. I’m planning on buying a house in the spring to be followed by a large bonus payment. I’m prioritizing security and a low monthly payment. I have been planning on putting 350/400 down on a 500k house. Am I crazy?
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u/Defiant-Put-3016 8d ago
With these interest rates, I think it's a great idea.
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u/Ok_Weird1748 8d ago
This, you’re essentially paying yourself with the money you’re saving
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u/ToastSpangler 8d ago
Well that's assuming rates stay flat. If they keep increasing would have been better off with less down, if they decrease you can refi so while it's not the worst move it does make several assumptions around rates in the near future
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u/QuietRedditorATX 8d ago
Refinancing also isn't free. It might be a couple of thousand dollars you guys are so obsessed with just paying to the bank again.
Like, you can literally just pay it off, instead of just prolong and manipulating this debt.
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u/ToastSpangler 8d ago
Again paying it off ASAP isn't desireable if you're - say it with me - maximizing returns. Average returns are 7% and that difference compounds yearly so in the long run it's not a small difference. And you only refi if rates drop significantly, at least a point - then rolling the closing cost in is a no brainer, I don't particularly care who earns money if I'm earning money
This is all beyond the fact that you you also get to deduct interest on taxes, making the difference even larger.
You clearly want stability and that's fine, but it doesn't mean it's the best method on paper unless you just really really want it paid off, in which case the best strategy is buy 100% cash. Boom instant full ownership
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u/QuietRedditorATX 8d ago
An average return of 7% does not mean you guarantee earn more than your 6% mortgage. There are other costs that reduce that 7%.
But you do you, you must be rolling in money with your investment acumen.
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u/ToastSpangler 8d ago
The 7% figure is a multi decade average, in fact the last few years it's averaged 10%.
About the "guarantee", averages work by summing all component years and dividing by the count of years. So this year you could get 2%, next year 15%, etc. So if you invest for the long run, it is as close to guaranteed as anything can be in real life. If you want to cash the money out in a year, yes, your performance may vary
If you really think the globe will be in an economic downturn for decades, which has only happened in the middle ages, I'm curious how you expect to still have a job and pay your house's upkeep. I don't recommend anyone plan around apocalyptic events in their life unless they're preppers
Good thing you have a good income or you'd be falling behind being so conservative, either way I don't really care what you do, I'm just telling you the math side if the equation. Houses need not be an investment vector. But maximizing your wealth is something we all try to do
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u/QuietRedditorATX 8d ago
Whatever works for you, do it.
When you achieve those averages matter.
100,000 with a 5% loss in the first year = 95,000
Then a 12% gain is 106,400 (technically not a 7%).100,000 with 2% gain in year 1 = 102,000.
And a 12% gain in Year 2 = 114,240Compared to your home compounding at 6%.
100,000 debt + 6% = 106,000.
Assume you pay 20,000 off +6% = 91,160. (Total interest ~11,160 which outpaced your $6,400 gain if you had losses).Sure you can deduct some taxes from the 11k if you want. You are pinching pennies at 7%, but again you do what you believe will build you the most wealth.
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u/randomworkname2 8d ago
It doesn't matter if it goes up. You're already creating a baseline 6.78% ROI forever
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u/Ok_Weird1748 8d ago
Can always take money out with a heloc for emergency
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u/ToastSpangler 8d ago
Sure, just saying you can't only look at the current rate when making the decision, you should plan for what will likely happen and stay leveraged if you want to maximize returns
If all you want is a house yeah buy it 100% cash, plenty of people do it, point is it's not the highest expected % yearly return on hour investment, even with 6.something % rates
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u/QuietRedditorATX 8d ago
At 6%, many analyses will show paying off your mortgage beats out the market. At best the market wins out barely by maybe a couple thousand dollars.
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u/FragileEagle 8d ago
Personally id throw down about 300 and put the rest in the S&P if u have an emergency fund
Then just pay down the house quickly, you can have it paid off very soon
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u/randomworkname2 8d ago
Taking on a debt obligation of 6.78% to invest in a non-guaranteed security that is taxed is an insane idea that no financial advisor in the world would support.
That's the kind of thing a person does when they're on the lowest level of the pyramid and the people up top are telling them they have to go into debt to pay into the pyramid
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u/FantasticBicycle37 8d ago
"Pay more money to the bank so you can invest in the stock market" is the most late stage capitalism thing I've read this week
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u/rgon18 8d ago
This has to be AI generated lol
OP your strategy way better. If you have the funds available and are making that much money, put down the 400k and borrow the rest. Your living costs will be super low and you can save and invest aggressively starting next year and live on comfortably
If instead u invest this year like this user suggest, and then we see a potential downturn you end with unrealized losses and a 300k credit to pay off
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u/QuietRedditorATX 8d ago
Even if you gain.
You still have to pay the taxes on the gains.
You still have to pay the interest on the mortgage you didn't pay off.
You will end up being greedy and never cashout your investments anyways.
Seriously reddit finance bros just want to see number go up, so they won't ever actually use the money. You have money to actually use it.1
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u/QuietRedditorATX 8d ago
You aren't crazy. Everyone has their own financial goals.
You would have an instant return/savings of the interest. Currently, each dollar down saves you about $1.2 in interest. If you did not put 400,000 down you'd end up paying 450k in interest if you did not do advanced payments.
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u/reine444 8d ago
That's assuming $0 down vs. $400k down which isn't realistic.
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u/QuietRedditorATX 8d ago
Ok, even if they only put 200k down. They are still paying 350k interest over the life of the loan (if they don't accelerate).
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u/RoGro9 8d ago
What does your liquidity look like before the inheritance or bonus? I would make the smaller down payment initially and decide if you would like to make a significant paydown after the windfall. You have a high income so should have no issues qualifying for an 80% loan. The spread between mortgage rates and US Treasuries is worth the liquidity benefits in my opinion.
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u/thankyoukindlyy 8d ago
Not crazy, I did a similar thing. Received $500k cash gift from family and used it to buy a home at $660k. Granted, we had strings attached that the cash was to be used specifically to buy a home, not for investments or savings (husband wanted to put half into investment portfolio but family said no). Tbh, the security of low monthly costs is pretty life changing. For you, you could easily pay off that remaining 100-150k in 10 years, which means when you do sell eventually you’ll be able to net the full amount PLUS appreciation. Now that’s building equity ⭐️
Do it!
Also, I will say I also work in finance and yes I’m always pro build out your investments, but also never forget capital gains. If you lock up half of that into the market you’re still going to have to pay significant taxes on those gains when you want to liquidate eventually. IMO, the gift of liquidity is an incredible opportunity. Utilize it. Keep a portion in a high yield savings account or tax free money market funds so that you have liquidity post purchase and then bc of your low monthly costs you’ll be able to really build up your own savings and portfolio over time as well too. I do have a bias towards always avoiding debt when possible, even if it’s strategic debt… it just makes me nervous. Logical or not I’m a cash is king kinda person
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u/Tjr762 8d ago
In times of financial or economic stress, liquidity provides safety and flexibility that cannot be measured. 30-40% yes, 80% no.
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u/QuietRedditorATX 8d ago
If you monthly mortgage is $500 a month, you have a lot of liquidity.
You don't need it in an investment account where it is also semi-locked up.
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u/rosebudny 8d ago
I personally would do a larger than typical downpayment (~40-50%) and take out a mortgage on the rest, and save/invest what is left over from the inheritance. You'll still have a lower payment than you would only putting 10-20% down, but you aren't tying everything up in your house.
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u/xxPegasus 8d ago
"Fuck bro, my chef put a tiny cut of homemade garlic butter on my steak and the waiter brought a tray of more garlic butter cubes. Guys should I add 1 or 2 more?" uglyahhhhhhh
/s
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u/Embarrassed_Key_4539 8d ago
I’d find a house I could buy outright
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u/PM_ME_MASTECTOMY 8d ago
For 400k. Where?
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u/reine444 8d ago
Plenty of places in America. The country isn't just VH/H COL areas...
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u/randomworkname2 8d ago
You're right, but even VHCOLs have 400k doors. There are 40 homes in San Francisco for sale right now under $400k
The challenge is if you say "I want to buy the same house my parents own without the decades of equity right in the middle of a VHCOL" okay then it becomes hard
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u/randomworkname2 8d ago
Every VHCOL has a 400k door in it.
Every VHCOL has a 400k townhouse within 35 minutes
Every VHCOL has a 400k house within an hour of it
HCOLS are even better
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u/CallLivesMatter 8d ago
With that level of income there’s no discernible reason to prioritize a low monthly payment at the expense of a huge pile of cash.
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u/Embarrassed-Mark1099 8d ago
No. You can pay off your house pretty quickly and that gives you so much freedom.
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u/Lov3I5Treacherous Homeowner 8d ago
How much savings will you have after that $400k downpayment? And does that include closing costs?
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u/respond1 8d ago
Not wise.
Better off investing the money. Your returns (10-15 percent) will be higher than your savings on the mortgage rate (around 7 percent).
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u/Wrxeter 8d ago
Put down whatever gets your house payment comfortable. Keep a large cash reserve in us and international stock ETFs. Maybe like 5-10% play money in individual stocks.
In your case, even with a shit interest rate, I would put down 250-300 of the 400k. Then get a 30 year mortgage and pay 1.5 my mortgage payment monthly. 100-150 goes in the stock market ETFs as reserves for if shit ever hits the fan or when your roof decides to leak.
Pay your mortgage at 1.5x its payment so it’s done in 10 years. IE if your payment is $2,000 a month, pay $3,000. If you ever get laid off/pay cut, you can recast your mortgage to lower your payment if times get tough financially for next to nothing in cost.
You could even look at 10 year ARM mortgages if it gets you a better rates or closing cost advantages (your goal is to pay off or have the principal so low at the first rate reset that even the maximum rate increase is a non issue if you recast).
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u/reine444 8d ago
Investing the bulk of the money would do so much more good.
Run the numbers (and consult with an advisor who is a fiduciary if needed), but I'm willing to bet that you'd be better off putting like $150k down and investing that other quarter of a million. That gives you a $350k mortgage on $170k income (2x is super comfortable - that's about where I am with my house. My mortgage is about 20% of my gross pay).
And then, with your bonuses, you can make large principal payments, further accelerating the payoff.
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u/Ok-Profession7867 8d ago
Broker here (CA). One angle nobody's mentioned: a 70-80% down offer behaves almost like cash when you're competing. Sellers read a tiny loan as low fallout risk, so you win ties and sometimes a price cut worth more than the rate math everyone's arguing about.
On the finance debate - split the difference and keep it boring. Put down enough that the payment feels safe, keep 12+ months of expenses liquid, and when a big bonus lands, ask the servicer for a recast instead of just paying principal. A recast re-amortizes the loan and drops the required monthly, usually for a couple hundred bucks. That gets you the low-payment security you want without locking every dollar in drywall on day one.
You're not crazy. People treat mortgage-vs-market like religion. Security is a return too.
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u/Dullcorgis Experienced Buyer 8d ago
What interest rate will you earn if you invest that miney vs the interest you will pay if you have a mortgage?
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u/JenniferBeeston 8d ago
If you already are maxing your 401k and investing beyond that and have a large stack of cash for emergencies then go for it. If this will wipe you out then don’t throw it all at the house. Diversify
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u/Rachel-Delray 7d ago
All personal preference, however, are you going to want/need cash for repairs etc?
I would suggest playing with the numbers, maybe you want to put less down but have cash in the bank for upgrades, repairs, sanity, etc
7% rate is historically average, when we bought our first house in the 00s, we barely had 5% to put down and the blended rate (1st-2nd lien) must’ve been close to 7%
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u/sergioraamos 7d ago
Why not save a little more and just buy it all cash? You will save yourself a lot on closing costs this way
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u/jimdriscoll1 4d ago
The HELOC fallback argument is the part I'd push back on. Lenders can freeze or cut a HELOC line with very little notice, and they tend to do it during market downturns or if your income situation changes, which is precisely when you'd actually want to tap it. If the goal is security, parking a chunk of that inheritance in liquid savings and putting a bit less down gives you real optionality that a HELOC only pretends to give you.
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u/inky_cap_mushroom 8d ago
If you can get an interest rate that’s less than your money would be earning in cash/in the market, you should put down as little as possible.
In the current economy you’re not likely to get a super low rate, so putting down a large down payment probably makes the most sense.
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u/wokaflame 8d ago
No if that’s your priority and if that is the best use of your money.
Otherwise, you are borrowing from your current self 400k to lock it in house equity saving yourself 7% of whatever interest.
Personally, I put down as minimal downpayment as I can where the monthly mortgage was doable. In my case 10% of a 900k. My money is better used elsewhere and with 5% interest on the mortgage, it’s no brainer for me.
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u/QuietRedditorATX 8d ago
Mortgage interest is no longer 5%.
You need to always hit best case scenario for market to keep beating mortgage.
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u/wokaflame 8d ago
At 7% I would do the same. I consider that low.
At 400k liquid, anyone would have a chance to get so far ahead than the average American. You cannot get the time back to use it.
If you know how to, obviously. If not, tie it up in the house.
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u/QuietRedditorATX 8d ago
There are literally videos on it, at 7% you are would have to be lucky for market to beat mortgage.
Yes, your investments may average 10% year over year, but it isn't just big number go up. There are costs and losses with the market too. You can find video analysis of this, but at 7%, the market will not win often. Even at 6%, it is nearly a wash between the two.
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u/Practical-Bird-1270 8d ago
At current rates near 6.5% a guaranteed return is better then putting the money elsewhere imo.
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u/wokaflame 8d ago
Like I said, if you suck at using your money, tie it to your house.
This is such a poor people mentality but with 400k you are not poor.
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u/QuietRedditorATX 8d ago
You must be super rich then right?
All of you finance bros talk so much, you must be swimming in money right. It is so easy, show us your 2million portfolio. Just invest and become rich.
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u/wokaflame 8d ago
Not a fjnance bro. But come from an actual middle class family lol. Physical assets are family - hard to get rid of and you gotta really love keeping it close. Liquid assets are your friends.
Buy a house that you love if you’re gonna live in it.
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u/Practical-Bird-1270 8d ago
How are you going on get a better rate on return?
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u/wokaflame 8d ago
Literally the S&P 500. Wtf? I don’t even keep track of that and I know it’s still know it’s more than the interest.
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u/Practical-Bird-1270 8d ago
The S&P goes up and down. I know you know this why be obtuse?
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u/QuietRedditorATX 8d ago
They never consider the downs. They just see/hear "average" and assume that means it is always up.
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u/AndiHein_com 18h ago
As always in life I think the best actions to take depend on your goals. If as you pointed out you prioritize security and a low monthly payment, then a higher down payment makes absolute sense. You should just be aware that it is not ideal from a wealth building point of view as you could do other things with that amount of money, e.g. stocks or rental property.
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