One of the challenges you will face when deciding how much money to put down on your new home is whether to put down a larger down payment or to take a bit of money from your down payment and use it to pay "discount points" to lower your interest rate.
There are pros and cons to doing both and each borrower's situation will be different so it's important to understand which option is best for your individual need.
Some Factors You Should Consider Include:
- Cost Of Borrowing - generally speaking, to lower your interest rate will mean you pay a premium. Most lenders will charge as much as one percent (one point) on the face amount of your loan to decrease your mortgage interest rate. Before you agree to pay discount points, you need to calculate the amount of money you are going to save monthly and then determine how many months it will take to recover your investment. Remember, discount points are normally tax deductible so it may be important to talk to your tax planner for guidance.
- Larger Down Payment Means More Equity - keep in mind, the larger your down payment, the less money you have to borrow and the more equity you have in your new home. This is important for borrowers in a number of ways including lower monthly payments, potentially better loan terms and possibly not having to purchase mortgage insurance depending on how much equity you will have at the time of closing.
- Qualifying For A Loan - borrowers who are facing challenges qualifying for a loan should weigh which option (discount points or larger down payment) is likely to help them qualify. In some instances, using a combination of down payment and lower rates will make the difference. Your mortgage professional can help you determine which is most beneficial to you.
There is no answer that is right for every borrower. All of the factors that impact your mortgage loan and your overall financial situation must be considered when you are preparing for your home mortgage loan.
Talking with your mortgage professional and where appropriate your tax professional will help you make the decision that is right for your specific situation.
Labels: Down Payment, Home Buyer Tips, Qualifying For A Loan
When you already have a home, you may be interested in determining if a refinance is a good option. You will not have to worry about restrictions on down payments or some of the problems that can occur with a down payment.
However, if you are considering purchasing a home in or the surrounding communities, understanding down payment restrictions is important.
Gifting Of A Down Payment
There are some programs that will allow you to use a gift for your home down payment. However, before you assume this, make sure you talk to your loan officer. Generally speaking, the lender will require the person making the gift to provide a letter stating the money was a gift and does not require repayment.
Windfalls Of A Down Payment
When people hit the lottery or come into money through an inheritance, one of the first things they may consider is buying a new home. However, it is important to keep in mind that lenders will typically want to know exactly how you came up with your down payment.
Borrowers still need to show a "trail" of how they came into money. If your down payment amount has not been "seasoned" the lender may not accept your loan.
What Is A Seasoned Down Payment?
Generally speaking, your loan officer will want a "paper trail" to document your down payment. Most lenders require down payment funds to be at a minimum six months old.
For example, let's assume a borrower did win the lottery: If they deposit the funds into their checking account and leave it there for six months or more, the funds would be considered seasoned.
Lender restrictions on down payment funds are fairly common. If you are uncertain if your funds meet the lender's criteria, talk to your loan officer. In most cases, a lender will require at least one-half your down payment fall into the category of seasoned funds.
Some borrowers may use their retirement account or other savings to make their home down payment.
Don't wait until the last minute to discuss your down payment with your loan officer because you may wind up disappointed. Keep in mind, every lender has different requirements and these rules may not apply to your lender.
Labels: Down Payment, Home Buyer Tips, Mortgage Payments
Have you heard the term Private Mortgage Insurance (PMI) when looking to finance real estate?
You may be wondering what PMI is and how you know when you need to purchase it.
These answers can be hard to find among all the real estate jargon you might be hearing lately.
Below is the short version of what you need to know.
What is Private Mortgage Insurance?
Private Mortgage Insurance is an insurance premium required by some lenders to offset the risk of a borrower defaulting on their home loan.
When you put down less than 20 percent of the real estate's purchase price, the lender will generally require that PMI is added to the loan.
It is usually added into the monthly mortgage payment until the equity position in the real estate reaches 20 percent. However, there may be other options available in your area.
Under the current law, PMI will be canceled automatically when you reach 22 percent equity in your home, if you are current on your payments.
If you aren't current, the lender may not be required to cancel the mortgage insurance because the loan is considered high-risk.
After getting caught up on your payments, the PMI will likely be cancelled. Any money that you have overpaid must be refunded to you within 45 days.
What if Your Real Estate Increases in Value?
With a conventional loan, it may take as many as 15 years of a 30-year loan to pay your balance down 20 percent making the minimum monthly payment.
But, if property values in your area rise, you might be able to cancel the PMI sooner.
Some lenders may be willing to consider the new value of your home to determine the equity in your home.
You may, however, be responsible for any fees, like an appraisal, that are incurred to assess the new value of your property.
In the end, private mortgage insurance is likely a good option if you can't afford a down payment of 20 percent of the purchase price.
Now May Be A Very Good Time To Take Action
With all of the activity happening the housing market, now may be the best time for you to purchase your new home.
A smart next move would be speaking with a qualified home financing professional to learn which programs and down payment options are available in the Seattle area.
Labels: Down Payment, PMI, Private Mortgage Insurane
