Reply #31: Bad advice in this market. Current issues have a lot more to do with Alt-A lending

[Godhumor]

than not having 20% down payments on fixed rate loans.

&8,000 in the bank is low for this kind of purchase, even today, and you still cannot claim a gift towards closing or downpayment for a fixed rate loan (As I stated earlier FHA borrowers can receive the 8K tax credit now to apply towards closing). That said, with rates what they are, it makes a lot more economic sense to buy now if you can.

Let me apply this to your example:

Say he waits 3 years to earn 20% down and buys a house at 180,000 at the 7% you made an example of (Also, a decent assumption for a couple years from now, I think). His monthly payment is roughly 958 dollars. Let's say he buys it now with 3.5% down and at 5.5% (Average FHA rate from earlier this week). His payment is roughly 986 dollars. Not exactly a compelling reason to wait if he can put together the closings costs in the next few months.

Heck, even assuming he locked in at 7% today at 3.5% the difference is less than 200 dollars a month. Economically, if you can qualify for a fixed rate loan and you can cover closing and prove good "dollar sense" there is absolutely no reason to follow the 20% rule.

Edit: Should add that the payments do not include PMI which you would have to pay monthly until you hit 20% equity (Usually between $20 and $100 a month depending on the value of the house, etc.).