First Things First
Most homebuyers, when getting ready to buy a home, start by looking at real estate listings on the internet, newspapers and magazines. Before contacting a real estate agent or shopping for interest rates you should take a look at your savings.
The amount of money you have available for a down payment on your loan and for closing costs will impact your home purchase in several ways – including the purchase offer, the different loan programs you qualify for and interest rates.
The lower your down payment will be the more limited your loan program options will be. If someone gives you part or all of the down payment as a gift this will also limit your options and if you do have enough for the down payment but not for the closing costs this will further limit your options. Rules vary with different loan programs on how you qualify if using your 401k or retirement plan for your down payment.
On the other hand, if you have enough for a large down payment you will have much more options.
You can choose from a variety of programs such as conventional fixed rate loans, adjustable rate mortgages, buydowns, VA, FHA, graduated payment mortgages and all the varieties of each.
Shopping For Rates
One of the most important reasons why you want to know the amount of your down payment is for shopping interest rates. Certain loan programs will charge you a higher interest rate for a low down payment. Interest rates aren’t the same with different loan programs, conventional, FHA and VA loans all offer fixed rate loans but the rate varies from one program to another.
The best thing to do is to get in touch with a lender who will be able to tell you which is the best program for you and quote your interest rates accordingly. You can also shop on the internet but you won’t have the professional assistance that a lender can give you.
Writing Your Offer
Your down payment also affects how you write your purchase offer, different loan programs have their own requirements that affect how you write your offer, especially with VA and FHA loans.
If you need the seller to pay all or part of your closing costs you have to be sure that your loan program allows it. Lenders will allow the seller to pay less closing costs than they would for larger down payments. Some loan programs will allow a seller to pay for certain closing costs, but not others.
Your down payment will also affect your ability to qualify for a loan. Lenders will be stricter about having you conform to their underwriting guidelines with smaller down payments whereas with a larger down payment you will have better chances of them making allowances or exceptions to the rules.
The down payment has an effect on every choice you make when purchasing a home. There’s nothing wrong with looking around and getting a good feel of the inventory and prices in your local real estate market, but when you are ready to pull the trigger the first thing you want to do is figure out how much money you have available for the purchase.