Your Savings and Down Payment
Your First Step Toward Buying a Home
When preparing to buy a home, the first thing many homebuyers do is look at
"homes for sale" ads in newspapers, magazines and listings on the internet.
Some potential buyers read "how-to" articles like this one. The next thing you
should do - before you call on an ad, before you talk to a Realtor, before you shop
for interest rates - is look at your savings.
Why?
Because determining how much money you have available for down payment
and closing costs affects almost every aspect of buying a home - including how
you write your purchase offer, the loan programs you qualify for, and shopping for
interest rates.
Mortgage Programs
If you only have enough available for a minimum down payment, your choices of
loan program will be limited to only a few types of mortgages. If someone is
giving you a gift for all or part of the down payment, your options are also limited.
If you have enough for the down payment, but need the lender or seller to cover
all or part of your closing costs, this further limits your options. If you borrow all or
a portion of the down payment from your 401K or retirement plan, different loan
programs have different rules on how you qualify.
Of course, if you have enough for a large down payment, then you have lots of
choices. Your loan choices include such varied programs as conventional fixed
rate loans, adjustable rate mortgages, buydowns, VA, FHA, graduated payment
mortgages and all the varieties of each.
Shopping Rates
A very important reason you need to have at least some idea of your down
payment is for shopping interest rates. Some loan programs charge a slightly
higher interest rate for minimal down payments. Plus, the interest rates for
different loan programs are not the same. For example, conventional, VA, and
FHA all offer fixed rate loans. However, the rates vary from one program to
another.
If you shop lenders by phone, the loan officer will be able to tell which programs
fit and quote you rates accordingly. However, if you are shopping on the internet,
you have to have some idea of your loan program on your own.
Writing Your Offer
Another reason you need to have a clue about your down payment is because it
affects how you write your offer to purchase a home. Not only are you required to
put your down payment information in the offer, but different loan programs have
different rules which also affect how you write your offer. This is especially
important when dealing with FHA and VA loans.
If you are asking the seller to pay all or part of your closing costs, you have to be
certain your loan program allows what you are asking. For smaller down
payments, lenders allow the seller to pay less closing costs than for larger down
payments. Some loan programs will allow a seller to pay certain types of costs,
but not others.
Finally, your down payment also affects your ability to qualify for a loan. When you
make a small down payment, lenders are fairly strict about having you conform to
their underwriting guidelines. For larger down payments, they will tend to make
allowances or exceptions to the rules.
Conclusion
As you can see, the down payment affects every choice you make when you buy
a home. Although you should look at ads, familiarize yourself with
neighborhoods, learn about prices, and read as much as you can - when you get
ready to take action - the first thing you should do is figure out how much money
you have available for the purchase.
When preparing to buy a home, the first thing many homebuyers do is look at
"homes for sale" ads in newspapers, magazines and listings on the internet.
Some potential buyers read "how-to" articles like this one. The next thing you
should do - before you call on an ad, before you talk to a Realtor, before you shop
for interest rates - is look at your savings.
Why?
Because determining how much money you have available for down payment
and closing costs affects almost every aspect of buying a home - including how
you write your purchase offer, the loan programs you qualify for, and shopping for
interest rates.
Mortgage Programs
If you only have enough available for a minimum down payment, your choices of
loan program will be limited to only a few types of mortgages. If someone is
giving you a gift for all or part of the down payment, your options are also limited.
If you have enough for the down payment, but need the lender or seller to cover
all or part of your closing costs, this further limits your options. If you borrow all or
a portion of the down payment from your 401K or retirement plan, different loan
programs have different rules on how you qualify.
Of course, if you have enough for a large down payment, then you have lots of
choices. Your loan choices include such varied programs as conventional fixed
rate loans, adjustable rate mortgages, buydowns, VA, FHA, graduated payment
mortgages and all the varieties of each.
Shopping Rates
A very important reason you need to have at least some idea of your down
payment is for shopping interest rates. Some loan programs charge a slightly
higher interest rate for minimal down payments. Plus, the interest rates for
different loan programs are not the same. For example, conventional, VA, and
FHA all offer fixed rate loans. However, the rates vary from one program to
another.
If you shop lenders by phone, the loan officer will be able to tell which programs
fit and quote you rates accordingly. However, if you are shopping on the internet,
you have to have some idea of your loan program on your own.
Writing Your Offer
Another reason you need to have a clue about your down payment is because it
affects how you write your offer to purchase a home. Not only are you required to
put your down payment information in the offer, but different loan programs have
different rules which also affect how you write your offer. This is especially
important when dealing with FHA and VA loans.
If you are asking the seller to pay all or part of your closing costs, you have to be
certain your loan program allows what you are asking. For smaller down
payments, lenders allow the seller to pay less closing costs than for larger down
payments. Some loan programs will allow a seller to pay certain types of costs,
but not others.
Finally, your down payment also affects your ability to qualify for a loan. When you
make a small down payment, lenders are fairly strict about having you conform to
their underwriting guidelines. For larger down payments, they will tend to make
allowances or exceptions to the rules.
Conclusion
As you can see, the down payment affects every choice you make when you buy
a home. Although you should look at ads, familiarize yourself with
neighborhoods, learn about prices, and read as much as you can - when you get
ready to take action - the first thing you should do is figure out how much money
you have available for the purchase.
Still have questions? Contact me today for a free
consultation!
consultation!
Colin O’Neal
Buyer’s Agent
200 North Rufe Snow Drive, Ste.102
Keller, TX 76248
(817) 898-0145 Office
(817) 898-1771 Fax
colin@househuntersdfw.com
Buyer’s Agent
200 North Rufe Snow Drive, Ste.102
Keller, TX 76248
(817) 898-0145 Office
(817) 898-1771 Fax
colin@househuntersdfw.com
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