Your First Step Toward Buying a Home
The first thing many people do when they’re curious about buying a home is start looking at real estate listings online. The next thing you should do - is CONTACT YOUR REALTOR so that they can help you determine what you want and what you can afford. The very next step is to take a look at your savings account.
The amount of money you have available for the down payment and closing costs affects almost every aspect of buying a home, Especially how you write your purchase offer, the loan programs you qualify for, and shopping for interest rates.
If you only have enough saved for a minimum down payment, your choices of loan programs will be limited to only a few types of mortgages. If you are receiving all or part of the down payment as a gift, your options will be 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. This will also affect whether or not the seller will even consider your offer. 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.
If you do have enough for a large down payment, then you have a lot more options to choose from..
Your loan choices include such varied programs as conventional fixed rate loans, adjustable rate mortgages, VA, FHA, graduated payment mortgages and all the varieties of each.
Shopping for Rates
The most important reason you need to know how much you have for a down payment is so that you can get the best interest rate. 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.
The best way to shop for a lender is to talk with one over the phone.The loan officer will be able to tell you which programs fit and quote your rates accordingly. If you are shopping on the Internet, you have to figure out the loan programs on your own.
Writing Your Offer
The final reason you need to be aware of how much you are willing to use as a down payment is because it affects how your Realtor will be able to write your offer when you do find a home you want to purchase. Different loan programs have different rules that also affect how your offer is written. This is especially important when dealing with FHA and VA loans and when competing with other offers.
If you want to ask the seller to pay all or part of your closing costs, you need to make sure the amount is within the guidelines of your loan. If you have a minimum down payment, the lender may only allow the seller to pay a portion of the closing costs, whereas if you have a larger down payment you may be able to ask the seller to pay for more of the closing costs.
Your down payment also affects your ability to even qualify for a loan. Some lenders may be willing to make allowances or exceptions to some of the underwriting guidelines if you have a large down payment. When your down payment is smaller the loan requirements may be more strict.
Determining how much you have for a down payment will affect your choices and options when you buy a home. Although it is only part of the process of buying a home, it is also one of the most important and should always be the first step.