Forum: money.stackexchange.com
Tags: <mortgage><real-estate><risk><risk-management>
Title: For a mortgage down-payment, what percentage is sensible?
Question: In Australia, even after the  global financial crisis , it's still common to only have 5-10% and some people even use other assets as collateral to borrow all 100%. I hear historically this has not been the case, it's only been the last decade of so during the housing boom.  In terms of avoiding risk and stuff, what do you think is a sensible percentage? Or is that even a relevant measure? Should people be looking at say, income?

Answers:
sents: text: In Australia, you will typically be required to pay for mortgage insurance if you borrow more than 80% of the value of the property.
text: Basically this means another ~1% on top of the regular interest rate.
text: So it's in your interests to save until you can at least reach that point.
text: If you can't rent and save at the same time, it suggests your finances may be too stretched for buying now to be a good idea.
answer_details: author: money.stackexchange.com/users/1992/poolie
score: 6
sents: text: The typical down-payment was expected to be 20%.
text: The idea being that if one could not save 1/5 of the cost of a house, they were not responsible enough to ensure repayment of the loan.
text: It is hard to say whether this is truly a relevant measure.
text: However, in the absence of other data points, it is pretty decent.
text: It typically requires a fair amount of time to amass that much money and it does demonstrate some restraint.
text: (e.g. it is easily the cost of a decent new car or some other shiny "toy.")
text: Income is not necessarily a good measure, on its own.
text: I am certainly more responsible with my spending when I have less money to spend.
text: (Lately, I have been feeling like my father, scrutinizing every single purchase down to the penny.)
answer_details: author: money.stackexchange.com/users/868/George Marian
score: 5
sents: text: A bigger down payment is good, because it insulates you from the swings in the real estate market.
text: If you get FHA loan with 3% down and end up being forced to move during a down market, you'll be in a real bind, as you'll need to scrape up some cash or borrow funds to get out of your mortgage.
answer_details: author: money.stackexchange.com/users/1288/duffbeer703
score: 3
sents: text: Well hindsight tells us now that by and large, doing 100% borrowing was not the best policy we could have taken.
text: It gets nitpicky, but in the US the traditional 20% is the answer I presently feel comfortable with.
text: It could be a reactionary judgement I am making to the current mess (in which I have formed the opinion that all parties are responsible) and arm-chair quarterbacking "
text: if we had only stuck with the 20% rule, we wouldn't be here right now .
text: The truth is probably much more gray than that, but like all things personal finance it is really up to you.
text: If the law allows 100% financing ask yourself if it really makes sense that a bank would just loan you hundreds of thousands of dollars to live somewhere.
answer_details: author: money.stackexchange.com/users/91/MrChrister
score: 1
sents: text: I think anything from 10% on demonstrates a reasonable ability to save.
text: I would consider ongoing debt level a better indicator than the size of the down payment.
text: It's been my experience that, without exception, there is a direct correlation between a persons use of revolving credit and their ability to manage their money & control their spending.
text: Living in Seattle, I only put 10% down on my first house, but not only have we never missed a payment we have always paid extra and now have about 50% equity after 10 years with a family.
text: Yet it would have taken me another year to save the other 10% during which time I would have burned that amount and 1/2 again in useless rent.
answer_details: author: money.stackexchange.com/users/2134/Lawrence Dol
score: 1
sents: text: I am currently in the process of purchasing a house.
text: I am only putting 5% down.
text: I see that some are saying that the traditional 20% down is the way to go.
text: I am a first time homebuyer, and unfortunately we no longer live in the world where 20% down is mandatory, which is part of the reason why housing prices are so high.
text: I feel it is more important that you are comfortable with what your monthly payments are as well as being informed on how interest rates can change how much you owe each month.
text: Right now interest rates are pretty low, and it would almost be silly to put 20% down on your home.
text: It might make more sense to put money in different vehicle right now, if you have extra, as the global economy will likely pick up and until it does, interest rates will likely stay low.
text: Just my 2 cents worth.
text: EDIT:
text: I thought it would not be responsible of me not to mention that you should always have extra's saved for closing costs.
text: They can be pricey, and if you are not informed of what they are, they can creep up on you.
answer_details: author: money.stackexchange.com/users/1693/Rick
score: 0

Summary of the answers:
In the US, the traditional downpayment is 20%. 10% onwards is a reasonable amount of money to save.
It is generally considered that 20% is a good-size down-payment on a home, though other people may feel comfortable with less. Making a bigger down-payment will provide you greater security, but the most important thing is probably for you to feel comfortable with your monthly payments. Income in isolation is generally not a good measure for assessing what the best option would be.