Mortgage down payment affects everything else.

Your First Step Toward Buying a Home

When preparing to buy a home, the first thing many
homebuyers do is look at "homes for sale" ads in
newspapers, magazines and listings on the internet. Some
potential buyers read "how-to" articles like this one. The next
thing you should do - before you call on an ad, before you talk
to a Realtor, before you shop for interest rates - is look at
your savings.

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.

Mortgage Programs

If you only have enough available for a minimum down
payment or no down payment at all, 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.

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,
buydowns, VA, FHA, graduated payment mortgages and all
the varieties of each.

Shopping Rates

A very important reason you need to have at least some idea
of your down payment is for shopping interest rates. Some
loan programs charge a higher interest rate for minimal
down payments or no down payments. Generally speaking,
the more money you have for a down payment, the lower your
interest rate will be. 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.

Writing Your Offer

Another 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 be certain your loan program allows what
you are asking. 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 or zero
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.

Conclusion

As you can see, the down payment affects every choice you
make when you buy a home. Although you should look at
ads, familiarize yourself with neighborhoods, learn about
prices, and read as much as you can - when you get ready to
take action - the first thing you should do is figure out how
much money you have available for the purchase.