If you do not have 20% as a downpayment for buying a house you should rent. Period.

[wercal]

91. You are making an assumption that one has the money in hand...

...and would just rather hold onto it, than put into a downpayent. There are upsides and downsides to that, but quite frankly most people on this thread who don't like a downpayment are giving reasons that deal with a person's inability to accumulate the money in the first place. They don't have it in hand, and their complaint is that they never will. For people in that situation, I strongly recommend Renting.

But back to the situation where a borrower has the $20k, but only wants to put $5k down and hold onto the other $15k. First of all, the borrower (and their spouse) have to be disciplined enough to not dip into that money to buy a new boat, etc. And, if they are, it becomes a numbers game. What interest do you pay on that as borrowed money vs what it earns in savings? And, can you get a lower rate with a larger down payment? Another factor is PMI...an expense that disappears when you get to 20% equity.

I think mortgages are at 3% now, and savings accounts are 1-2%...so unless I'm missing something, you do lose money by keeping it out of the downpayment, in today's market. And, you pay a little for PMI. But, I can understand the sentiment of not tying the money up....just know you'll lose a little bit of its value every year. I actually concur in a sense, that I think it is risky to deliberately amass equity beyond 20%, any faster than the amortization calls for. I'm sure BOA has an express lane for foreclosure on properties with over 60% equity...they can file after one late payment and steal your equity right away from you. So I do agree that a seperate savings account, for a balloon payment at the end, is better than using the mortgage as a depository for savings.

As far as values go, if yours has risen so much in the last 3 years, I would say you live in a very hot market. My valuation from the tax appraiser has stayed the same for 4 years now...and I don't live in an area that was terribly affected by the housing crisis. But, as you know, many people live in houses that have lost 20-25% of their value - and they are trapped beyond belief. They would have done themselves a favor by either making a large down payment, or at least having it 'on hand'....but 99% of the people who don't want to make a large down payment are of that opinion because they absolutely can't.

BTW, I still think the housing market hasn't hit bottom yet (at least in some areas). As an example, I bought a house for $93,500 in 1994...and sold it for $172,000 in 2006. However, if the house value were to have been tied to an average inflation of 3%, it should have been worth $133k at that time. So it was over-valued. Extending inflation to 2013, it should be worth $163k....so inflation still hasn't caught up, and the house still has 5-6% of its value to lose. So, I still don't think its a great time to buy (in most places).