Asked by
Hope
|
Submitted July 29, 2014
Is it better to have a large down payment or better credit?
We can either pay off debt with tax return and have no debt and better credit but small down payment going into buying, or we can have so-so credit with debt and larger down payment.
Answers | 5
Answered by
Chad Freeman, Branch ManagerPRO+ in Bethesda, MD
Hello Hope:
You can think of credit as something that reflects your "fiscal personality" and you always want to make a good impression. By that I mean your credit history and credit score give lenders a good idea of how you handle your finances and whether or not you are a safe risk to take. That said, because there are numerous low-down-payment mortgage options available for most home buyers, my advice to any client of mine would be to preserve their credit rating and maintain a favorable credit history. I hope that helps you in deciding on an option.
You can think of credit as something that reflects your "fiscal personality" and you always want to make a good impression. By that I mean your credit history and credit score give lenders a good idea of how you handle your finances and whether or not you are a safe risk to take. That said, because there are numerous low-down-payment mortgage options available for most home buyers, my advice to any client of mine would be to preserve their credit rating and maintain a favorable credit history. I hope that helps you in deciding on an option.
$commenter.renderDisplayableName() | 07.24.17 @ 08:58
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Answered by
Ted Rood, Mortgage BrokerPRO+ in Maryland Heights, MO
That's always a fine line, and to get an exact answer, you need to meet (personally or over the phone) with a mortgage professional who can examine your credit report, your credit utilization (% you owe on credit cards compared with their limits), and current versus potential new credit scores. It does no good to have a large down payment if your scores aren't adequate, and does no good to have great scores with insufficient funds to close. Do yourself a favor, call a lender (I write loans nationally) to get a full, accurate answer to your scenario.
$commenter.renderDisplayableName() | 07.24.17 @ 08:58
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I doubt paying off some debt is going to raise your credit score much. A credit score is built over several months if not years of timely paying your bills. My advice would be to pay off your debt and then take the extra savings from those payments and save them toward a bigger down payment. I don't understand why people are in such a hurry to bite off more than they can chew on a home. Personally if you can't afford a 15 year mortgage save until you can. Best thing I ever did was refinance to a 15 yr and then I had money to send the kids to college and pay for weddings since the house was paid for. Conventional thinking these days is by all the house you can afford and don't ever pay off your mortgage. Trust me when you are in your 50's or 60's you don't want to have to crack a mortgage nut every month.
$commenter.renderDisplayableName() | 07.24.17 @ 08:58
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Answered by
Dave Bradley, Investment Manager (Financial Advisor) in North Charleston, SC
Hi Hope,
If you want a "better" answer, we need to dig deeper into the question. Lower credit score generally translates into a higher down payment and/or higher interest rate. The inverse also applies - higher down payment generally means a lower rate. There are also other variable to consider.
Now let's go deeper.;
1). Can you afford the payments?
3). Where else can you put your $$ with a higher ROI?
As an example,;
Age 40
Home price $500K
Put 20% down= $100K
Age after 30 yrs of pmts= 70
Using a 30 yr fixed rate of 4.5%.. PMT + $2026.74/month. (P & I only)
Total of payments (30 months or 360 pmts) =$729,626.40
As an Investment Manager, here is another option:
Put 10% down=$50K
Invest the other $50K and in 15 yrs (or less) it become $400K.
Pay off the mortgage on the house in FULL.
Now you pay yourself $2,280.08 (using conservative terms as above but using $50K down payment) for the remaining 15 yrs = $410,407.20
Now, after 30 yrs you have a house paid in full plus an extra $410,407.20 in your Owner's Equity pocket.
Which is "better" for you?
On debt, Our general position is for our clients to be in a position to pay off all their debt within 3 yrs using cash flows. Our focus is on efficient debt management.
We invite you to contact us directly to discuss further. No obligation.
It's not what you make, It's what you keep that determines your lifestyle.
If you want a "better" answer, we need to dig deeper into the question. Lower credit score generally translates into a higher down payment and/or higher interest rate. The inverse also applies - higher down payment generally means a lower rate. There are also other variable to consider.
Now let's go deeper.;
1). Can you afford the payments?
3). Where else can you put your $$ with a higher ROI?
As an example,;
Age 40
Home price $500K
Put 20% down= $100K
Age after 30 yrs of pmts= 70
Using a 30 yr fixed rate of 4.5%.. PMT + $2026.74/month. (P & I only)
Total of payments (30 months or 360 pmts) =$729,626.40
As an Investment Manager, here is another option:
Put 10% down=$50K
Invest the other $50K and in 15 yrs (or less) it become $400K.
Pay off the mortgage on the house in FULL.
Now you pay yourself $2,280.08 (using conservative terms as above but using $50K down payment) for the remaining 15 yrs = $410,407.20
Now, after 30 yrs you have a house paid in full plus an extra $410,407.20 in your Owner's Equity pocket.
Which is "better" for you?
On debt, Our general position is for our clients to be in a position to pay off all their debt within 3 yrs using cash flows. Our focus is on efficient debt management.
We invite you to contact us directly to discuss further. No obligation.
It's not what you make, It's what you keep that determines your lifestyle.
$commenter.renderDisplayableName() | 07.24.17 @ 08:58
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$commenter.renderDisplayableName() | 07.24.17 @ 08:58
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