Jason,
Can you afford to put 20% down on your new home, and still have enough money for a rainy day? There are several rules of thumb, but 3-6 months of your current income is what many financial advisors say you should have in some type of savings. If the answer is yes, don't consider any creative games, just use the standard practice.
If your answer is no, then it is better to finance a little more money than to deplete your savings. The reason is that if you lose your job, then your savings will allow to to keep your home while you find a new income source. So where does the creativity come into play? It's the ways to avoid PMI. PMI is some evil bankers concept to charge people, who can least afford it, insurance if they own less than a 20% stake in their home. Typically, these are called 80/10/10 or 80/15/5 plans. You take out a standard 30yr mortgage for 80% of home value, a 15yr second mortgage for 10% of your home's value, and only put down 10%. The second mortgage is usually 2pts higher in interest. With an 80/10/10, your payments are lower than if you would have taken a 90% 30 yr mortgage and paid PMI, and you build-up equity quicker. When we moved up to MD, we had to go with an 80/10/10 like arrangement due to the high home prices, so I'm speaking from personal experience. There are also similar scenarios that can be played with jumbo vs conventional loans.
Can you afford to put 20% down on your new home, and still have enough money for a rainy day? There are several rules of thumb, but 3-6 months of your current income is what many financial advisors say you should have in some type of savings. If the answer is yes, don't consider any creative games, just use the standard practice.
If your answer is no, then it is better to finance a little more money than to deplete your savings. The reason is that if you lose your job, then your savings will allow to to keep your home while you find a new income source. So where does the creativity come into play? It's the ways to avoid PMI. PMI is some evil bankers concept to charge people, who can least afford it, insurance if they own less than a 20% stake in their home. Typically, these are called 80/10/10 or 80/15/5 plans. You take out a standard 30yr mortgage for 80% of home value, a 15yr second mortgage for 10% of your home's value, and only put down 10%. The second mortgage is usually 2pts higher in interest. With an 80/10/10, your payments are lower than if you would have taken a 90% 30 yr mortgage and paid PMI, and you build-up equity quicker. When we moved up to MD, we had to go with an 80/10/10 like arrangement due to the high home prices, so I'm speaking from personal experience. There are also similar scenarios that can be played with jumbo vs conventional loans.
