4 Essential Financial Steps to Your New Home
If you are preparing to buy a new home, the first thing you need to look at is the “homes for sale” advertisements in papers, real estate magazines and look through listings online via the internet. Some intending buyers will read, “need to know” articles like this one. Then the very next thing you should do before you call off an ad and before you talk to the real estate agent, and even before you look at bank or loan interest rates – is look at what you have available in your savings account. Now you are going to ask – Why? Well it is because knowing the amount of money you have to put on as a down payment and to take care of closing costs will affect all of the other aspect of buying your house. This includes how you will write your purchase offer and agreement, the loan plans you will qualify for, and lastly looking at current interest rates.
Should you only have enough to put down a minimum down payment, the choices of loan plan available will be limited. This may mean that you will only have a couple of mortgage or loan options at best. Also, if you are receiving part or all of the down payment, this will also limit your options. Another limiting factor would be that if you have enough monies to cover the down payment, but need the bank or the vendor to pay out all or some part of your closing costs, this will further limits your options. One other way is, if you borrow all or some of the deposit or down payment from your retirement plan, you may qualify under different rules for different mortgage or loan plans. But, should you have enough to meet the full amount of the deposit or down payment, then you will have many options available to you. The choices will include plans such as, standard bank fixed rate loans, adjustable or variable rates, graduated payment mortgages, buy-downs, VA, FHA and many varieties on each option.
One of the most important reasons you will need to know what amount of deposit or down payment you have, is for shopping of the current interest rates from banks or second tier loan institutions. Some mortgage and loan plans will charge higher interest rate for minimal or smaller down payments. Also, interest rates for different mortgage or loan plans are not the same. For example, conventional, VA, and FHA all offer fixed rate loans. However, the rates vary from one program to another depending on all of the conditions you as the mortgagee bring to the table. Should you find out rates from the banks by phone, the banks loan officer will be able to tell which programs you qualify for and can then quote you the current rates. But, should you shop via the internet, you will need to have an idea of what mortgage plan you want on your own. This brings its own set of problems, and I recommend that you either call or go and visit your bank or lender to get the plan that best suits your circumstances.
Another good reason you need to know what your deposit or down payment is because will affect how you put your offer or agreement to purchase a home. You need to include this deposit or down payment information in the offer, and different loan plans have different rules and these will affect how you write your offer. Especially when dealing with FHA and VA loans. If the seller is paying some or all of the closing costs, you must know if your mortgage plan allows it. For lower deposit or down payments, banks allow you to pay less closing costs than for a larger deposit.
Different mortgage plans allow a seller to pay certain types of costs, but not others. Check this carefully with the bank or lender before making your offer. Lastly, your deposit or down payment also affects your ability to qualify for a mortgage. When you make a small deposit or down payment, banks are quite strict about having you meet all of their underwriting conditions and guidelines. If you make a large down payment, they some times make allowances or exceptions.
From what you have read, you will now realize that the down payment or deposit affects all the choices you can make when buying a new home. So, before you look at newspapers and advertisements, visit the neighborhoods, look at local pricing, and read up on the area. When you think you are ready to make your move, the very first thing you need to know is, how much money you have available for the purchase.