Mortgage Fearbuster 11

Posted by  on Apr 21, 2010

Q: My partner and I are buying a house for $200,000. I want to put down 20% down, but he says we shouldn't spend everything we have saved on the down payment. Before we call it quits and don't need to buy a home, can you tell me what we should do?

A: Here are a few considerations in favor of making a 20% down payment. In addition, lenders have gone to a risk-based pricing model, which can severely penalize those with lower down payments--up to several points. You may qualify for a lower mortgage rates with with a larger down payment. Lendersxtra fees! You will also require private mortgage insurance (PMI) for any mortgage greater than an 80% loan to value ratio. Divide the amount of your mortgage by the appraised value of the home you're buying; in your case $160,000 / $200,000 = 80%. Although homeowners pay for MI, it protects the lender in the event of foreclosure. A larger down payment also helps to build equity and protect against against downward fluctuations in home prices. You'll be less likely to owe more on your mortgage than your home is worth if prices go south.

Q: I'm buying my first home, and am pretty nervous. Every one (especially my father-in-law) tells me that getting a mortgage is complicated. Other than shopping for the best interest rates, what else should I look for?

A: One of the best things a first time home buyer can do (besides watching those mortgage rates) is to look for state and local first-time home buyer programs. These programs typically offer rates among the lowest mortgage rates available to eligible first time buyers. Part of the process usually involves taking a home buyer education course, which explains the mortgage loan process. Mortgage lenders can tell you about first-time home buyer programs in your area.


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