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Down payment importance

One of the first things a prospective home owner will do is to think about how much of a payment they will put down on the house. How much you use as a down payment can affect a variety of other costs of your home.

“Your Down Payment Affects Everything,” an article published by realestateabc.com, explains how your down payment affects your future finances including; how you write your purchase offer, available loan programs and shopping for interest rates.

A “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 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 know whether your loan program allows this. Some lenders will allow sellers to pay a lesser amount for smaller deposits. Some lenders will only allow sellers to pay certain types of costs and not everything.

Writing your offer and down payment also affects you when applying for a loan. Small down payments usually cause lenders to be stricter and force you to conform to certain specific guidelines.

“If you only have enough available for a minimum down payment, your choices of loan program 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. 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.”

Putting down a large payment will ultimately open up 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.”

Another factor affected by your down payment is interest rates. Some loan programs will charge a higher interest rate for minimal down payments. But a larger down payment will usually result in a lower interest rate.

Your down payment affects other aspects of your loan. Ultimately you will save the most money from putting down the largest possible payment.

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