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Down Payment

Posted by  on Apr 16, 2009
 
Choosing a down payment for your house or loan program can be difficult because of all the choices available. 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 some of the down payment from your 401K or retirement plan, different loan programs have different rules on how you qualify.

You have several choices if you have enough for a large down payment. Your loan choices include such varied programs as conventional fixed rate loans, adjustable rate mortgages, buy downs, VA, FHA, graduated payment mortgages and all the varieties of each. 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. The next thing you can do before you call on an ad, before you talk to a realtor, before you shop for interest rates is look at your savings.

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. 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. In addition, the interest rates for different loan programs are not the same. For example, conventional, VA, and FHA all offer fixed rate loans. 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

Another reason you need to have a clue about your down payment is that 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 strict about having you conform to their underwriting guidelines. For larger down payments, they will tend to make allowances or exceptions to the rules.

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