Mortgage Tip: 20% vs 10% Down. A 25% profit guarantee.

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This site is mostly about buying and selling real estate in Virginia, MD and DC, but most don’t realize that I also like to take an active role with the lending process. Kinda spot checking to make sure things look right and bringing up “oh, I hadn’t thought of that, type stuff.” Those little things can make a $15,000 difference. Does your agent do that?? (again, why you shouldn’t hire a buyer or listing agent based on bullet points, but instead based on a brain)

Anyhow, today I wanted to discuss something that came up with a blog reader via my online chat (see right column). He was heading down the path of a 10% mortgage, even though he had more cash. He wanted to be “conservative”¬†and have a cushion.

That is fine and all, but what the lender who asks you only superficially “are you putting 10% or 20% down” and stops there, isn’t telling you is that picking 10% down can cost you 2% more in fees!

So your 10% down is really more like 12% down/brought to closing.

Another way to look at it is if you can just scrounge up another 8%, then you save 2%. Hum, put down 8%, make a guaranteed 2%… that is a 25% return on your money. Guaranteed! Can’t beat that anywhere. Not even the FDIC.

Just something to think about when considering 10% down when buying real estate in Maryland or Virginia (DC too).


Frank B. LLosa Esq.
Broker MD, VA, DC

(authorized to practice law in NJ only)

p.s. What are you thoughts on this… I am considering switching the domain over to Too few people realize there is a real firm behind the site.

  • 13
  • October
  • 2012

19 Responses to “Mortgage Tip: 20% vs 10% Down. A 25% profit guarantee.”

  1. I like a Realtor getting involved in the financing, but curious what fees you are referring to that are increasing 2% when only putting down 10% rather than 20%?

    My bank charges the same $1,175 lender fee regardless of how small or large the down payment is…….even $0 down has the same fees.

    When you say the 10% down option has 2% more in fees, what loan amount is the 2% based on?

    Another thing to think about when deciding whether to put 10 or 20% down other than the PMI that will be needed and when that can be removed, think about the lost opportunity of that money being used for the larger down payment.

    I see people carrying a lot of consumer debt at 15-26% rates and they think it would be better to make a larger down payment than getting rid of that non-tax deductible revolving high rate credit card debt.

    Or, if bringing in the larger down payment, that money is no longer earning compound interest.

    I guess every scenario is different for everyone since every borrower can have different goals, needs, and financial stability. It’s unfortunate more lenders don’t do more comparative analysis of the many options available to them.

  2. Jack says:

    As a Realtor that likes to get involved with the buyer’s financing, do you also welcome having the loan officer get involved with the buyer’s choice of property and the negotiations of the purchase agreement?

  3. says:

    Hey Jack,. Thanks for commenting! I like hearing the good and bad.

    I want my clients to ask the right questions. Time and time again I have spoken to a lender that said “but they said they wanted to go the xyz route”, to which I say “but did you challenge that and give the pros and cons” and they say no.

    I have no problem with a lender telling the client “ask him if he recommends sellers paying closing costs or whatever.”

    Here is the kicker…

    Lenders do NOT have a fiduciary duty to their client. Sure, ethics might override profit, but their legal duty is to their company to profit. An agent has a fiduciary duty to the client. Huge difference.


  4. Tchaka says:

    You have the right idea, however it appears that the example you use isn’t quite right. There isn’t an upfront charge by the lender for financing over 80%, however a higher amount is charged via Mortgage Insurance (MI) so in effect the borrower is paying more by doing so until it gets knocked off. Is that 2%? I haven’t done the calculations so I’m not sure.

    There are a few instances where your example is correct. Here are two:

    1. A borrower is financing a house using a 15-year FHA loan. The upfront fee (I believe it’s 1.75% now) is waived if 20% is down.

    2. When financing an investment property with a Fannie or Freddie backed loan, the difference between 20% and 25% down is either 1.50% or 1.75% (I’ve seen differing amounts by lender). In fact, I recently spoke with a buyer who was advised to put 20% down and given that he has the funds available, I strongly urged him to put down 25% because the 20% is really 21.50-21.75% down.


  5. Jack says:

    Good answer, Frank. Thanks.

  6. Doug Francis says:

    I am sure that Frank really isn’t going to be too “active” in your decision and it is still totally up to you to hash out the details with your mortgage partner.

    It’ll be “general” mortgage advice. Right Frank, old buddy?

  7. says:

    Hey Doug,
    My participation is relative to my trust of the lender. If they found some .com broker that I don’t trust, or an out of towner, I will be more involved.

    Recently we had a client that wanted to use an out of town lender and we warned them strongly that it could cause problems. They didn’t believe us. Even said we were being too aggressive with emphasizing one of our guys (we dont get kickbacks, but we know they can close!!). So we backed off. Sure enough, the appraisal was a week late and $40,000 short (which was not justified). Perhaps I can get a video of them explaining that maybe listening to us would help them.

  8. Jim Reynolds says:

    I like your site very much and have been following several years until I am ready to downsize. I suggest that you pay the small extra cost and have two registered domain names pointing to the same web site. A redirection is fairly easy to set up. That way you keep those who are occasional viewers on FranklyMLS yet add the FranklyRealty. More bang for the buck.

  9. says:

    Yep. Wouldn’t just trash the domain. Thanks for commenting

  10. John says:

    Hi Frank,

    I like the idea of a separate I like to think of it as a community site. Of course, I am not paying for the development, maintenance, or resources of the site so I can certainly understand why you would think otherwise.

  11. dan says:

    if you only put 10% down and opt for a Non buyer paid NO private mortgage insurance loan – then yes your fees will be at right at to more than 2% extra. IF you buy out of the mortgage insurance via Lender paid mortgage insurance ( LPMI ) that is an extra 1.37% charge as well as the .25% charge from the GSE’s for credit score – this is IF YOU have a credit score of 740 or above – if you have a 720 then plan on the fees to be over 2% ( 2.22% ) 1.72% for LPMI buy out – and then .50% for the GSE credit score. Most lenders make this charge transparent and bump the rate, which over time can lead to more than 2% in charges.

  12. Shea says:

    I wouldn’t change the name simply for recognition. Just put a note somewhere on the top of the site with a link. Most people “KNOW” and changing habits is a lot harder. You can have a redirect setup that when you type it will redirect you automatically to but it will need to stay active for like 3-5 years to really catch all of your users. I know I personally search your site a lot since I am looking for a new home and have used your site for years.

  13. Mike says:

    I come to your site all the time because it does not make me feel like I am being sold. I am not a real estate agent rather a big fan of your site who owns a home and is always looking to upgrade. I feel if you turned it into frankly reality it would lose it luster. I recommend everyone I know go to your site to look for homes. What if you did more to advertise on your site or make it more clear that franklymls is connected to frankly reality. I think hands down this is the best site I have ever been to as far as finding listings in the area I want to look. To be honest I am amazed a big time real estate brokerage has not tried to scoop up your page design.

  14. says:

    In there lies the problem, you recommend everyone to use the site, when I would prefer you recommend everyone use the company.

  15. kabb says:

    I’ve recommended to friends that they use you (the company) but alas, each one has not because I have no direct experience with buying/selling a home yet!

  16. Tony says:

    I am a lender. I recently worked with a client who I felt was over paying for a house recommeded by Realtor A. I told the client to find another (Realtor B) to find him another house. In fact I can him a list of three. I also recommended him never to pay A Relator’s Admin Fee, insist that the Realtor pay out of his pocket the Home Inspection Fee. Oh, almost forgot, he needed a Sellers Concession to close so I recommedned that the Realotr who was making $22,000 on his commmission pay for it. You can imagine he was very pleased that I was getting invlolved in the Realtors business.

  17. says:

    Tony, the key difference is the person was NOT your client. They were a customer. Huge difference. Your duty is to your company, not the customer. Our duty is to our client. A fiduciary duty.

    And if a lender has a good tip on a bidding war that other agents have used… I would be all ears.

  18. Peter says:

    I understand the point you’re making about a buyer incurring extra fees if they don’t put enough money down.

    But this reminds me of another discussion I often hear. If we ignore the fees question (by assuming a deposit of 20%+), people often say, “I shouldn’t put too much of my own cash into the house because interest rates are low, I get a tax break on my mortgage, and I could make more money by investing my own cash elsewhere (mutual funds, stocks, whatever).”

    Do you have an opinion on that?

  19. says:

    Opportunity cost is a HUGE variable. What else might you do with those funds. Do you want them in the stock market? That is like having cheap margin buying stocks. In other words, you pay 4% hoping to make 12% in the stock market, netting 8%. Great… IF the market goes up. If the market is flat, you lose 4%, if it drops 10%, you lose 14%. So there is no right or wrong, it depends on the person’s needs. Also rates are MUCH higher for that last 10-20% money.

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