{ "media_type": "text", "post_content": "How do people afford 20% down on homes above 500K? Outside of inheriting cash, curious how late 20s early 30s folks find themselves with 100K plus in cash?", "post_id": "60f45c810eba4800208179e7", "reply_count": 149, "vote_count": 23, "bowl_id": "552d1d24dc1c586b09d2d051", "bowl_name": "Consulting", "feed_type": "crowd" }
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How do people afford 20% down on homes above 500K? Outside of inheriting cash, curious how late 20s early 30s folks find themselves with 100K plus in cash?

likefunny
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20% down is sort of the dumbed down way that became common to say instead of saying the more technical explanation of what metrics ACTUALLY matter and the levers that affect them

You need 80% LTV (loan to value) or less in order to avoid PMI (insurance monthly fees) on your mortgage. That is the focus.

So somewhere along the line that because 100% - 80% LTV = “oh you need 20% down”

But what you really need to focus on is that your mortgage is either 80% or less of the home’s formally appraised value.

So, this is how you can avoid PMI with less than 20% down:

Scenario: you’re buying a house appraised for and selling at $1M house and you have $150k to put down.

1. Immediate option — get a traditional mortgage that comes in at <80% LTV. So, get a mortgage for $790k. You will not pay PMI because your mortgage is under $800k. At the same time (during purchase process) your mortgage broker will open a “piggy back” or “second mortgage” in the form of a HELOC that is fully utilized for the difference between that mortgage and your down payment and the house price.

In this case 1,000k - 790k (1st mortgage) - 150k (down payment) = $60k. So you’ll have a $60k fully utilized (meaning you draw all the funds immediately to utilize at closing) HELOC.

This is a commonly utilized technique.

2. Medium term option — you buy the house for $1M with $150k down, you owe $850k on your mortgage. But you’re in a hot housing market so if your house could appraise for $1.075M (79% of this number is $850k) in short order, then you could apply to have PMI removed.

3. Medium/longer term option — if your house doesn’t really appreciate much in value and stays about $1M, you aggressively pay your mortgage principle down until your balance has dropped from $850k to $799k, so then you’ve dropped under 80% LTV and can apply to have PMI removed.

likehelpfulsmart

Commenting as a bookmark. This is super helpful

like

2 years out of college (extremely fortunate to have no student loans) my husband and I just bought a house $85k down. With two consulting/tech incomes all we had to do is save moderately. In our industry it isn’t that hard. But as I said, we came out of school with no loans which likely sped us up a year or so. If it helps for context, our low stress savings each month is ~$5000. (Meaning we didn’t stress about buying things we both wanted or abound going out. So that savings is after all bills, fun money, going out money, etc are already accounted for.)

Also another small bit of perspective. 20% is not needed. We are at around 13% down and will have a slight higher payment for a year or two to pay for PMI aka private mortgage insurance. You pay this little extra each month until you reach 20% paid. This is a choice we made so we didn’t have to sell any stock. Note this is only a good option when mortgage rates are low, but it can be helpful, especially for young people with high income but low starting cash. Happy to chat a little more if you are actually curious the specifics since we literally just finished all this this month!

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I don’t think many people put 20% down

likesmart

Yeah... why 20%... go lower but unnecessary PMI

Saving $100K isn’t that hard if you don’t have student loans. It’s the loans that kill your savings in your 20s. Assuming you work at 21 and save for 9 years, that’s $11K cash savings a year to hit $100K. That’s super easy in this profession

likesmartfunny

Another thing is how aggressively (or not) you save for retirement. Divert $500 a month from retirement, that’s an extra $6000 a year. In addition to whatever else you were saving

like

I started in consulting out of undergrad. If you save your whole bonus starting at 22 and nothing else, you’d still have hundreds of thousands by 30…

likefunnysmart

SA2 good for you. I was responding specifically to S&'s comment about saving bonuses, since as you know our bonuses aren't nearly big enough to amount to $100k before 30 post-tax. And also we weren't even eligible for bonuses in our first couple years at the firm.

But to your point broadly, everyone's life circumstances are different. I'm 27 and have like 25k in the bank, but I also spent big on a wedding a couple years ago, own a house as of last year and have generally prioritized retirement savings over other kinds of saving. I'm also not entirely on the FIRE wagon so I have certain things I splurge on now because I want to enjoy life. I've also never had the benefit of living rent free and have been willing to pay more when I was renting for comfort (e.g., nicer area, less roommates, amenities, etc.).

Nobody's failing because they don't have 100k in their account on their 30th birthday.

To each their own.

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Lived rent-free for 5 years as wife gets an apartment with her job. Putting down £200k on £750k house this summer.

like

Well if two people are working, both on 60k and household bills and rent are taken care of ….. their salary is pretty much play money. And I’m being conservative with salaries. On that sort of money, they can save 20k every year… 40k * 5 years = 200k

10 years at ZS and was able to save enough to put 20% down on a $1MM home in the Bay Area. Took a lot of discipline but it’s very doable. Feel blessed to have a good paying job in consulting that allows for this

likefunny

How much do you get paid?

like

Looking at homes in the Denver area and almost everything is over 500K. I understand the market is hot everywhere, but Colorado has been crazy for almost 10 years…

like

In Denver and bought with 10% down, but couldn’t go through a traditional loan (they didn’t have a jumbo that allowed less than 20%). Conforming loan for Denver is capped in the mid $500’s, so if that is your low end you should be fine with less than 20%. Otherwise, look at Bank of Oklahoma.

Join military. Get VA loan.

like

I just bought with VA loan. Sellers readily accepted

like

I think, much more important than just thinking about the house, is freeing up cash to put into investments generally. Most people here will attest to the wealth creation from owning stocks in the last 13 years. You have to live as frugally as you can to pay off high-interest debt (incl student loans) and start building up growing assets. I came to consulting late, but started investing early. My first million took me 10 years, my second 5 years, my third only 2. You can do it!

like

Well put!l

Don't have kids = be rich

likefunny

I’m 26 and the hubs is 27 we have 20% saved for our down payment on a 800k plus home. I’ve only been working for almost 3 years and he has only been working for four. We saved more than 55% of our income every single month- no exceptions.

likesmart

Married at 23 and 24, I don’t think the shared expenses play into it anywhere near as much as the accountability. Him and I budget together twice a month without fail and we count every dollar and know exactly well all of our money goes. Most our friends think we are super rich because we still buy nice things and enjoy our money we are just very smart about where it all goes.

likeuplifting

I saved about $90K cash, put it to stocks since last August, and it turned to $100K. It is only 1 year and 6 months of savings. Depends on how well you are paid and how much you are spending versus cutting your costs.

I have been living like a grad student for the last year and half. Especially with the COVID hitting, I didn’t go out to eat, I didn’t go on a vacation for 6-7 months, and worked hard. I got paid well. If I were to buy a $500K home now, I can put down $100K right away.

I know it depends on many factors. Assets = Liabilities + Equity. Or net worth calculation. Some people could/would call me a cheapo for saving on little things like cord cutting, or cancelling Disney+, but that’s how I was able to discipline myself about my saving goals.

like

Great. Keep it up. Screw those haters

like

20% down removed the need for PMI. Most put less than that down and just pay the PMI

like

I haven’t inherited anything but have $153k invested in my non-retirement brokerage account, and I’m approaching my late 20s. Probably can put another 30k or so in there every year. Just saving my money and looking for ways to increase earnings I guess.

What is your income and current annual expense breakdown (roughly) and we could help you plan more

like

You don't put down 20%,. I got my first place (much cheaper) with 3% down.

like

What about it? You pay it until you hit 20% equity.

like

Build an emergency fund, pump excess cash into investments, make progress against any debt, don’t overspend on vacations, be patient :)

like

Had some help with loans in college. Wife also got some help with grad school. Once the loans were paid off, it was pretty easy to save up a nice nest egg by early 30s.

Everyone’s situation is different so don’t compare yourself against others.

likesmart

Bought a dumpy place in a nice neighborhood, fixed it up and sold for a nice profit. Took the proceeds and bought another place that was undervalued.

like

We got a $500k house for 5% down. Did the math- made more money in the market by keeping anything over than the minimum required in the market. Totally worth not putting 20% down.

likesmart

Its a rare person who is late 20s early 30s in consulting/finance/law/medicine who isnt sitting on a half million or so of wealth. I mean, where does the money go? Big ooooof is you are not in these professions, and also big ooooof if you have student loans. But for all others, a few hundred thousand should only take a few years to get to. Not a decade.

funny

Ludicrous

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