If you are buying a house, the first thing you need to figure
out is how much of a down payment you can afford to make. This
may seem like the sort of advice your father would give you, but
rest assured there are a few reasons why knowing what you can
put down and where you'll get the money can make all the
difference when shopping for a house and a mortgage to finance
your new purchase.
Before you pick up your local newspaper and browse the real
estate section looking for a new house, call up your banker,
your accountant, or your spouse and find out how much you've got
in savings and liquid assets to make the down payment and pay
the closing costs on your mortgage.
First you must consider the source of your down payment, because
this affects how much of the down payment your lender will
actually attribute to you the applicant for the purpose of
qualifying you for loan programs and determining your rates and
payments. If the money is from your savings and securities /
investment portfolio, be sure you can prove it. If you have
employer retirement tax deferred accounts, 401(K) 403(b)
accounts etc. and would like to use those as a source to finance
the down payment, the lender will likely have several special
conditions and limitations on the treatment of those funds. If
you are receiving the down payment in part or in total as a
gift, your lender will have another set of rules which will
affect your payments. How you pay for closing costs will also
have some affect on your final rates and payments; the more you
take from a third party like the seller, the more risk the bank
assumes.
A rule of thumb about size: the bigger the better when it comes
to your mortgage down payment, at least from the perspective of
programs, rates and payments. The more you put down out of your
own savings, the lower your payments and the broader your
selection of loan programs. An added benefit is that more money
down means that any blemishes on your credit report or a low
score count for less and less the more you pay upfront, and you
also reduce your income requirement by improving your debt to
income ratio. By knowing how much you can put down, you will
know in advance how much house you can be qualified to purchase
by your mortgage lender, get that mortgage pre-qualification
letter, and know what to put in your purchase offer with your
realtor, lawyer and seller when it's time to make an offer. By
finding out what you can afford to put down, you can get a head
start on knowing your overall homebuying budget, financing
options, and also have time to take care of the documentary
requirements, seasoning and time-sensitive pre-requisites
associated with closing your deal, saving you weeks if not
months of wasted time sorting out these matters after you've
found the house of your dreams.
So find out what you can put down and where you can get it from,
contact a mortgage broker to find out what you can afford and
what you can do with your down payment and documentation to get
the best rates, payments and terms, and then take a pre-approval
letter from the broker with you to start shopping for homes with
a full knowledge of what you'll be asking for and writing on the
contract.
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