Believe me, your down payment on a new home affects nearly everything you can think of in the buying process - the loan programs you're able to qualify for, the size of the interest rate, the amount of closing costs, etc.
The basic rule is this: the more you have to put down on a down payment for a home, the more options you have!
This rule is true because, like all lenders, mortgage lenders dislike risk. They're in the business of making money by lending money. So, the more money you put down, the lower the risk, and the more lenders like your deal.
And, that's not all. If you have enough cash for a large down payment, then more choices open up to you! You can choose conventional fixed rate loans, adjustable rate mortgages, VA, FHA, graduated payment mortgages and all the variations of each of these programs. By the way, when you combine a good-to-excellent credit score with a large down payment, you'll definitely get positive attention from loan officers!
Acceptable Sources for Down Payment Monies
In general, lenders want to see adequate funds available for a period of at least sixty (60) days in your account. The usual methods of proof of these funds are either a Verification of Deposit form or two months' worth of your most recent bank account statements.
So, if you're person who keeps money "under the mattress" or somewhere in your home, this isn't acceptable. It has to be deposited in an account (bank or investment) for at least two months (preferably longer).
In technical terms, this is called "seasoning." And the reason behind it is this: First, by having money in an account, it shows you have to ability and discipline to save money and, thus, are a good risk from the lender's point of view. Second, it demonstrates that the money is likely yours and not a personal loan from a family member or a friend. Lastly, and obviously, it shows you have enough money on hand for a down payment.
In general, here are sources you can use for a down payment:
• Checking account • Savings account • 401k account • IRA account (have to meet specific guidelines) • Money market account • Stocks • Bonds • Mutual funds • Certificates of deposit and other liquid assets. • Sale of an asset, etc.
Frankly, in this New Age of Frugality, the safest method is to simply save the money for a down payment. This teaches you financial discipline which is good for all aspects of your life, and it means you don't have to rob other assets to pay the down payment. I'd be happy to discuss and suggest many different ways of obtaining down payment money. Contact me today.
Want to break your heart and your bank account at the same time? Then buy a new home based on the fact that you've fallen in love with it! Needless to say, you should never do this! In some cases, when you fall in love with the "pretty face" of a house, you fail to look underneath and find problems like bad wiring, leaky roofs, bad foundations, etc. This is an extremely expensive way to buy a home! A funny and sad example of this is shown in the 1986 film, The Money Pit, starring Tom Hanks and Shelley Long. They make the mistake of falling in love with a home and think they're getting a $1,000,000 property for only $200,000. Once they get into the home, they find out it'll cost a million to repair it! It's got wood rot, a bad roof, bad plumbing, bad electricity, even bad raccoons! Well, that's Hollywood exaggeration, of course. After all, The Money Pit was a comedy. But, when things like that happen to you, it's no joke. Repairs can cost you a lot of money and heartache, not to mention dangerously rising blood pressure! So, again, never ever fall in love with a house at first sight! Easier said than done, you say? How do you avoid this tendency? Below, I offer some solutions to the problem! Solutions 1: Get Cold Hard Facts about the Home! When I talk about "cold, hard facts," I'm talking about getting the house evaluated by a certified home inspector. It's well worth the money to have this job done because the inspector will cast the objective eye you lack on the property.He or she will evaluate every aspect of a house - roof, plumbing, wiring, foundation, etc.
And then, that inspector will provide you with a written report that may range anywhere from 20 to 50 pages. It will give you a point-by-point summary of what needs to be corrected. The cost of a home inspection varies with the region of the country. Nationally, they range from $200 to $400.But, for the investment of, say, $200, you prevent yourself from losing thousands of dollars in repairs in two ways.One, you can simply walk away from the deal. Or, two, you can require that seller fix all items before you sign a contract! Bonus: Often, you can ask that the seller pay for the home inspection! Solution 2: Cool Off and Take Your Time! Infatuation with a home is fun and exciting, and you can have the overwhelming temptation to buy an attractive home practically "on the spot." My advice - walk away and come back several hours later, especially after you've viewed other properties! By then, it's likely you'll have a more objective eye. Solution 3: Keep It Simple! By this I mean that you should stick within your price range. You want the best hom e at the best price within your means! So, if you see an outwardly gorgeous home at, say, $10,000 above your price limit, say,"I love you, but you're way too pricey for me!"and walk away from the temptation! Solution 4: Rely on Your Realtor! At heart, I and other professional realtors like me, want you to have a home that meets your needs in the best way possible. That means preventing you from buying a home that's in substandard shape and/or beyond your means. To be perfectly blunt about it, I rely on great word of mouth from satisfied customers to make the most of my real estate career. So, you have my promise that I'll do my absolute best to get you into the house of your affordable dreams! Need that objective eye to help you make a smart home-buying decision? Contact us today.
