The Importance of your Down Payment

As a prospective home buyer begins their initial process, they often begin by perusing the home ads in the newspaper or checking for internet listings. Many newcomers to the real estate world will read all types of instructional articles to make sure they are fully prepared for the process. However, before you respond to an ad, or talk to an agent, a buyer needs to take a long look at their savings.

Why is that? It’s simple, because the amount of money you have available for the closing costs and the down payment will affect each and every part of the home buying process. This includes writing up your offer, the loan programs available to you, and how you shop for an interest rate.

Programs

If your financial situation dictates that you will only be able to make a small down payment, your program options are going to consist of only a few choices. The same also applies if you are receiving a gift to place as your down payment, regardless of how big that gift is. You are even further limited if you are asking the seller to cover any portion of the closing costs. There are also different rules and programs if you have borrowed from a retirement plan or 401K for your down payment.

Rates

The most important reason why you need to know what your initial down payment will be is for interest rate shopping. Certain programs will give a higher rate with a minimum down payment. Various programs offer different rates, and gathering all this information beforehand is a good idea.

The Offer

Having an idea as to what the down payment may be also will help you in writing your offer. As part of an offer, you are required to list what the down payment will be, and different programs have varying rules as to how your offer is written, especially when it comes to VA or FHA loans. If you expect the seller to pay a portion of the closing costs, you will have to be sure that your chosen program allows that. When a lesser down payment is made, a lender will not allow a seller to pay a large portion of the closing costs.

Summary

It should be quite evident now just how important the down payment is. That doesn’t mean you can’t place a minimum down payment, it just means that you must be prepared for what comes along with that.

Nick Muller | Kapital Investment Networking Group
www.king-and-assoc.com