Make a Down Payment on a New Home as BIG as Possible!

It’s a fact – a new home down payment affects nearly everything you can think of financially in the buying process – loan program options, interest rate, closing cost amounts, etc.

Here’s the fundamental equation on this subject:

The higher the down payment = more options for you!

Why is this rule true? For the simple reason, that mortgage lenders don’t like risk. Their business is making money by lending money. So, when you make a larger down payment, they say, “Wow, I like this deal because there’s less risk!”

The benefits don’t stop there, either. If you’ve got enough cash for a large down payment, the lender also says, “Hey, I’m willing to give this person more choices because he or she looks like a great bet!” A “smorgasbord” of options opens up to you - conventional fixed rate loans, adjustable rate mortgages, VA, FHA, graduated payment mortgages, etc.

And if you really want loan officers to fall in love with you, not only offer them a large down payment, but combine it with a good-to-excellent credit score. Believe me, you’ll have their undivided attention!

What Are Acceptable Sources for Down Payment Monies?

Generally, 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 an individual who keeps money "under the bed" or somewhere in your home, it won’t do you any good. That money has to be deposited in an account (bank or investment) for at least two months (preferably longer).

In the real estate/loan world, this is called "seasoning." And the reason behind it is this: First, by having money in an account, it demonstrates to the lender that you have the ability and discipline to save money and, therefore, are a good risk from his or her point of view.

Second, it also demonstrates that the money is likely yours and not a personal loan from a family member or a friend.

Finally, and most importantly, it shows you have enough money on hand for a down payment.

In general, here are acceptable sources 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.
  

To be blunt about it, the safest method to accumulate cash for a down payment is to simply save the money! This action teaches you financial discipline which is good for all aspects of your life, and it means you don't have to “steal’ money from other assets to pay the down payment.

As you can see, there are many different methods of obtaining down payment money, and I’d love to discuss the possibilities with you. Contact me at sclark@deebrealestate.com or 402.305.4335.