I personally abhor paying more in avoidable charges. PMI is an avoidable charge.
But as DWCAP says – it depends on where you are pulling the money from. Do you have your safety net money (several months reserves set aside.) Do you have 401k, 529 funds, etc for other long term savings goals.
I would also ask – why you would want to pay PMI and interest on the 40k? Are you worried that you’ll lose the money if the house goes down in value between purchase and sale? Is your goal to live there a few years, or to hold it, live in it, long term… eventually paying off the mortgage?
My mindset is different on this type of question because we have no intention of selling – so we’re trying to pay off our mortgage – with extra principal payments each month. I am personally uncomfortable with the idea of looking at the house I live in as a cash cow… it’s a home, it’s shelter, and the mortgage is an expense I can eliminate to reduce my retirement expenses. I’m very risk adverse. So factor those twisted notions into my advice…
My advise is to put the money down if you don’t have to rob another savings goal to do it. Why pay interest and PMI if you can avoid that expense.
But if you’re planning on selling in a few years my advise is completely opposite… My advise there is to ask why you’re buying rather than renting… you’re going to incur transaction costs, risk your down, etc. Look long and hard at why you are purchasing if it’s not a long term hold.
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