When preparing to buy a home, the first thing many homebuyers do is look at "homes for sale" ads in the local newspaper, real estate magazines and MLS (multiple listings service) listings on the internet. The first thing you should do before you respond to an ad, talk to a Realtor, or find a mortgage broker to compare interest rates is look at your savings. The amount of money you have available for a down payment and to cover closing costs affects almost every aspect of buying a home. How you write your home purchase offer, the mortgage loan programs you qualify for, and interest rate are all directly related to your down payment.
If you only have enough available for a minimum down payment, your choices of loan programs 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, and your mortgage lender will want proof that the gift does not have to be re-paid. 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 all or a portion of the down payment from a 401K or retirement plan, different loan programs have different rules regarding this. If you have enough money for at least a 20% down payment, then you have many more options. 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. If you are a mortgage loan officer who needs mortgage marketing services including mortgage marketing brochures, mortgage marketing newsletters, mortgage postcard marketing, and mortgage loan officer websites, check out WayOut Marketing.
A very important reason you need to have an idea of how much you can come up with for a down payment is for shopping interest rates. Some loan programs charge a 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. If you shop lenders by phone, the loan officer will be able to tell which programs fit your needs and are available to you, and quote you rates accordingly. However, if you are shopping online for a mortgage, you have to have some idea of the loan program you are interested in. For a thorough explanation of the various mortgage programs available.
Another reason you need to have a clue about your down payment is because 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 also 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 fairly strict about having you conform to their underwriting guidelines. For larger down payments, they will tend to make allowances or exceptions to the rules.
It is likely that your lender will also require Private Mortgage Insurance (PMI) to protect them against loss should you default on your mortgage loan payments.
Conclusion
As you can see, the down payment affects every choice you make when you buy a home. Although it is fine to study the housing market, familiarize yourself with neighborhoods, learn about prices, and read as much as you can, when you are ready to purchase a home, take the time to assess your savings and ability to make a down payment.
Next step: Know your Credit Score!
I hope you found this mortgage article helpful and will save this site as a valuable resource tool as you shop for a home loan. If you are ready to shop for a mortgage loan and would like to be contacted by mortgage brokers who are interested in giving you a mortgage loan
This article detailing How the Down Payment Affects Your Mortgage Loan was provided by Christopher Calloway, a marketing executive in Tampa, Florida. Mr. Calloway runs WayOut Marketing (), a company specializing in targeted marketing solutions for Mortgage and Real Estate professionals.
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