Your First Step Toward Buying a Home

Before you look at a home, call on an ad,…blah, blah, blah, you should review your savings account and talk to a mortgage officer.

Why?

Because 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.
Now, don’t get me wrong, there are many loans which will allow you to purchase – even if you have very limited down payment funds. But, the more funds you have available, the more choices you will have.

Mortgage Programs

If you only have enough money for a minimum down payment, your choices of loan program will be limited to only a few types of mortgages. If someone is “gifting” you 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 all or a portion of the down payment from your 401K or retirement plan, different loan programs have different rules on how you qualify.

Of course, if you have enough for a large down payment, then you have lots of choices.

Your loan choices include such varied programs as conventional fixed rate loans, adjustable rate mortgages, buy-downs, VA, FHA, graduated payment mortgages and all of the mutations of each.

Shopping Loan Rates

Some loan programs charge a slightly 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 and quote you rates accordingly. However, if you are shopping on the internet, you have to have some idea of your loan program on your own.
Please….PLEASE…be wary when dealing with internet mortgage offers. History has proven to us experienced real estate professionals that a high percentage of these internet “dudes” can not get the job done. When your real estate deal in Louisville needs some special attention, it’s not likely the internet dude in Montana is going to respond. You need a local person…someone you can “lay your hands on.”

Writing Your Offer

The amount of your savings affects how you write your offer to purchase a home. The Sellers have the opportunity to review your financial status and draw their own conclusions (right or wrong) regarding YOUR ABILITY to purchase their home. They’re going to favor the Buyer who offers them the least “hassle” in obtaining financing.

If you are asking the seller to pay all or part of your closing costs, you have to be certain your loan program allows you to do so. 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.

If you’d like some additional counsel regarding this subject please contact me.