How did you save for your down payment for your home?

[bright eyed]

I know the prevailing winds here are for you to pay the 20% down for your home. How did you do it?

 

[Razor]

I saved by spending less money than I made.

 

[bright eyed]

Being from CA, I think I'm particulary interested in those who live in high cost areas where LBYM alone makes it tough...a first home/townhome/condo around here is about $400-500k for a 3-4 bedroom (if you have kids)...and just a year or two ago was closer to $600k-$700k for good school districts... Aside from my fantasies of relocating to CO, or renting forever, I'm curious to see what others have done.

 

[freebird5825]

i'm in a rural area slowly becoming residential.

saved enough for 10% down payment, FIL loaned us $10K at 6% interest to cover closing costs and move-in expenses. paid that personal loan off in 3 years.

a historical perspective to compare to today's climate - this was late 1984 and local credit union had 20 year fixed interest rates = 14.5% + 0.25% PMI, no prepayment penalty. best deal at the time.

that interest rate was painful. but refinanced 4 years later at 10% fixed and lived happily ever after. paid off the mortgage in 15 years flat (versus buy new car).

have no clue what new homebuyers are facing today. anyone out there looking at a homeowners loan?

 

[growing_older]

When I was young (and foolish?) and saving up for a first downpayment, I was unimpressed by the low rates in Money Market funds and saved up the downpayment in a separate account using a balanced equity income fund. As it happened, I found a house (and a lender) way earlier than expected and instead did a 90% loan with PMI. Luckily that also got my downpayment out of the market before anything bad happened to it. I saved the rest of the downpayment retroactively by putting it towards the principal until I could get the loan down enough that lender would drop PMI.

If I had to do it again, I'd use a Money Market fund in a separate account. Short term risk in stock market investments is too high for money I want to use for housing in a few years. I'm doing something like that now to save some funds to bridge between ER and first draw on retirement assets. I let them accumulate in an interest (barely) bearing checking account until there's enough to sweep into a Vanguard Money Market fund (prime money market).

 

[growing_older]

Oh, I also moved from my nice rented place into a really really cheap place while I saved. The year spent on the cheap both made it easier to save and strongly reinforced the desire to do so, so I could buy a place of my own.

 

[thefed]

I put ZERO down, and got 2 loans 80/20 to avoid PMI .... effective APR of 7.5 30 yr fixed, 19 yrs old, self employed, NO emp verification, showed $3k in bank , 1 point

And you wonder why the lenders are scramblin!!!!

I was able to re-fi with a big bank and it was stated as well, no verification.... 5.5% fixed 15 yr no points

 

[CyclingInvestor]

20K cash savings down in 1981 for a 81K house in Torrance, CA area 2 years after
college graduation. Traded up in 1987, put 32K down on 154K house in Long Beach, CA.
Still there (house now worth $400K, down from $525K peak)

 

[calmloki]

Bought a piece of crap old house in '78 with holes in the ceiling from where the (missing) oil stove chimmny went through, glass fuses, leaking wood shingle roof, primitive bathroom. That's what i could afford with the $5000 i had saved that made up 20% or so of the purchase price. Fixed things as i could afford to pay for them using my labor and salvaged/surplus/sale material. Months of time with no operational kitchen (bathroom water is much the same). Months of time with the only heat being a wood stove in the bathroom at the far end of the house. Seems like people today are entitled to much better things than i felt i was. Good for them if they can afford it!

 

[LOL!]

Had to vote "other". We rented for many years until we were over age 36. While renting, we invested our money in mutual funds. When we bought our house we put 20% down for a 3000+ sq ft 4 br 3.5 ba, 2 car garage home that is closer to a McMansion than a starter home. We had saved/invested so much, we could've paid cash, but decided not to. The mortgage payment is less than the rent of the apartment we used to live in.

To add: We've owned the same home for 13 years now. We still owe more than half the purchase price on the mortgage. Also the home value has not kept up with inflation, so if we sold, I'm sure we could say we lost money on the deal.

 

[ziggy29]

I was 23 when I bought a condo in San Jose in 1989. I put about 7% down, and the mortgage rate was (eek) 11%.

I refi'd twice -- all the way down to 6.5% -- before selling it in 1997 to buy a single family residence nearby. I used personal savings, equity in the condo and a $10,000 gift from dear old Mom and Dad in order to get 10% down on a $239,000 property.

 

[youbet]

Married at 21 and mutually decided to delay starting our family until we had our own house. Shared the goal of having enough down payment so that the monthly mortgage payment would be affordable on my salary only and DW could stop work and we could start our family. We both worked and we lived very frugally (one bedroom 2nd floor flat on the northwest side, all donated furniture from friends and relatives, etc.) and purchased our first home after two years. $12k down on a $34.5k home.

That first home was tiny but located on a one acre lot in a swanky Chicago suburb and was surrounded by upscale homes. We sold it for $48k four years later and moved into a new, modest, but custom built to our specs house on a smaller lot. Rolled all profits from the first house into the second retaining a very affordable mortgage payment ref my salary.

Still living in that second house today, 31 years later. Many folks have explained to us that we shouldn't have worried about the affordability of our mortgages and that putting down a lot of money was a financial mistake. But, heck, we felt comfortable, lived life as we wanted never having the pressure of a large monthly payment and enjoy a secure, if somewhat modest, retirement today.

Edited to add: BTW, our housing style is congruent with the rest of our financial history. No big investment wins. No big inheritance. Only a few years of higher than average salary. Slow and steady conservative living. When friends ask how I managed to get to FIRE by 58, they're asleep within seconds of listening to the boring story! (Note: our financial life has been pretty boring. Overall, we've had more than our share of excitement/adventures/fretting and worrying/joy and celebration in our lives.)

 

[Darryl]

Did 10% with PMI brought in 3 boarders to help defray the huge payment on the $24,000 mortgage (1980's) and relied on a microwave for cooking for the first six months before I liked our cash position enough to splurge on a used stove.

 

[shoe]

In the fall of 1976 DH and I moved into the basement of his parents house so that we could quickly save for the required 20% down for a house. By March of '77 we had $8000 saved and bought $40,000 bungalow. Our payment was $322 a month which at the time was 25% of our combined salarys.

 

[W2R]

My pay went up drastically, and instead of spending it I continued to LBYM. As a result I accumulated $60K within a couple of years. It was early 2002, and I was still a little too timid about the market to invest it. So there it sat. When I decided in the summer of 2002 to buy a house, why, there was my down payment!

Actually I only had to use $32K for my 20% down payment. After paying closing costs, moving expenses, buying furniture, and so on, I still had quite a bit left. When I sent some in as a lump sum payment, I was astounded at how much it shortened the length of my mortgage. But that is another story.

 

[Sue J]

We married young, lived in a tiny, but cheap apartment for 7 years and saved up for a down payment. Like "youbet" we wanted to have a house before we had kids and we wanted to be able to afford it on just my husband's income.

In 1983 we had saved $11,000 and my dad had generously offered that he would match what we had saved. But he had no idea that his LBYM attitude had rubbed off on me so well and he never thought we'd have as much as we had! So he was able to give us $8000.

We went house shopping and found a 4 bedroom, 2 bath 28 year old house for $60,000. We put down $15,000 and financed $45,000 at 12 3/8%. We had enough left for closing costs and moving and start-up costs. Our old refrigerator did not tolerate the move well and our first surprise about living in a house came when we had to go shopping for a new refrigerator before even unpacking.

We are still in the same house and it's paid off. We refinanced a couple of times, when the rates dropped from the highs in the 1980's.

 

[Bigritchie]

I did a no income verification loan 100% financed hehe. Doubt you can do that anymore.

BUT, a starter house where I live is 50-100k.

I have a 3 bedroom 3 bath 4 car garage house now that cost me 130k or so.

I can see where being in California would be very tough.

 

[Alan]

Our first home was back in 1977. We paid 5% down, but the mortgage was only 1.5 x our annual income so never had any worries. We married while in college, were aged 22, had graduated 3 months earlier, and both earned the same money as EE engineers. House prices were rising fast back then in that area and we were living in the red light area of the city and couldn't wait to get out of there.

We actually sold it 18 months later when we changed jobs and moved out of the area for 40% more than we paid for it.

 

[Khan]

Almost 30 years ago: only had 10% cash, both had good jobs, got FHA backed load (9.25%).

 

[honobob]

purchased our first home after two years. $12k down on a $34.5k home.

That first home was tiny but located on a one acre lot in a swanky Chicago suburb and was surrounded by upscale homes. We sold it for $48k four years later

Wow, 8.6% annual compounded appreciation and a 113% return on your down payment. Has that continued to be typical for Chicago?

 

[youbet]

Wow, 8.6% annual compounded appreciation and a 113% return on your down payment. Has that continued to be typical for Chicago?

Good question! And I'm hardly the person to ask since, as I stated, we've now been in our "new" home for 31 years. So...... hardly an expert on the local real estate market here!

Would four year periods of 8.6% compounded appreciation be unusual? I thought that recently some areas of the country were doing more than that.....until the RE crash.

113% return on our downpayment.... Hmmmm.... Hadn't thought of it that way. Maybe that's what our friends meant when they said we were nuts for putting so much down. Had we put down less, that return would have be greater.

BTW, that first house quickly became a "tear down." 1100 sq ft houses on one acre lots in swanky Chicago suburbs seem to be sucumbing to "bulldozer remodeling" these past years.

Maybe some of the other board members from the northern Ill area can comment. Have there been other four year periods when getting a 8%+ compounded return on your house occured? I know that would be too high a figure for a long time period, 20 - 30 - 40 years. But not sure it's that unusual for a relatively short burst.

 

[Buckeye]

VA, FHA, VA, VA (spouse), VA, VA, 20%

VA was basically $0 down. I think FHA was 3% down.

 

[REWahoo]

It was 37 years ago, and I don't have a clue how we made the down payment. But I do remember the price: $7,500. 30 year FHA loan, payments were $75 a month.

 

[Urchina]

We're in Central CA, Coastal. Five years ago put $85K down on a modest 2 bedroom condo and took a 5/1 ARM (at 5.5%) for $340K. That loan reset in October and they jacked the interest up to 7.5%, so we're refinancing and just locked in a 30-year fixed at 5.65%.

We had help with our down payment, from my very creative FIL. He has four kids, all of whom he would like to help with down payments, but only $70,000, which he also needed income from to supplement his retirement. Split 4 ways in CA, that money wouldn't go very far, and put into a savings account he wouldn't get much interest out of it. So he gave it to us first, and we pay him 5% straight interest on the loan, monthly. The deal is that when the next kid is ready to buy a house, we refinance or otherwise pay the loan forward, send the $70K to the next kid, who then takes over the straight 5% interest payment to him, and so on.

The other $15K we saved in one year by LBYM; If we'd had to do the whole down payment by ourselves we would have moved into a studio, ditched a bunch of our stuff, and worked our tails off for a couple of years. FIL made it come easier and quicker, and we're grateful for it. But we spent the last five years LBYM, saving like mad, and building equity in our condo so that we could pay the next kid off when the time came. So, in a sense, we saved our down payment in a few years by LBYM, but AFTER moving into our current home.

I love the ingenuity of this plan, and it's working well so far.

If you get some sort of deal like this with family, be aware that many lenders don't like or won't allow you to have a loan for a down payment (unless you're working out a 80/20 scheme with them or so forth). So you might need to figure out a way to work around those requirements.

 

[honobob]

It was 37 years ago, and I don't have a clue how we made the down payment. But I do remember the price: $7,500. 30 year FHA loan, payments were $75 a month.

Wow! Usually FHA down was 3% or about $225 in your case. I did FHA in CA in 1986 right when they were changing the program and paid $5,000 total for a 85,000 loan. About a 12,000% return at my present market value.

So at 4% annual compounded appreciation rate you are living in a $32,000 house or at 8% annual compounded appreciation rate you are living in a $129,000 house. At 8% I'm thinking I can deal with the scorpions and chiggars, etc.

Texas appreciation, myth or fact?

4% Appreciation my *ss