It doesn’t matter how you approach the task of house hunting, eventually, you’ll end up taking a good, long look at your savings. Why? Because determining how much money you have available for a down payment on your home will affect just about every aspect of the home buying decision. From the housing type, to the mortgage rate, even how you word your purchase offer, all of these decisions come down to the amount of money in your bank account.
How Your Down Payment Affects Your Mortgage Rate
If you only have enough money available to cover the very minimum down payment on your dream house, watch out. Minimum down payments limit the type of mortgages that you’ll qualify for. Similarly, if someone is giving you a gift for all or part of the down payment, you’ll run into some limitations and mortgage restrictions. A qualified mortgage broker can help you review these limitations and provide you with advice for how to move forward.
Of course, if you have enough for a large down payment, then your mortgage choices are infinitely larger. You’ll have the freedom to choose between such varied programs as conventional fixed mortgages, adjustable rate mortgages, graduated payment financing plans, and more.
Your Down Payment Affects Your Ability to Shop For Rates
While you’d probably prefer to be shopping for a home, one of the most important aspects of house hunting involves pinning down an interest rate. In order to do this, you’ll need to have a pretty good idea of your down payment. Some mortgage programs charge slightly higher interest rates for minimal down payments. Plus, the interest rate can vary depending on the type of mortgage.
Even the most experienced home buyer can have trouble making sense of mortgage rates and requirements. For help navigating this complex world of payments and procedures, contact a mortgage broker. A knowledgable broker will be able to explain things in plain English and provide you with reasonable financing recommendations.
Will You Qualify?
Finally, your down payment will also affect your ability to qualify for your mortgage. The smaller your down payment, the stricter your lender will be about having you conform to their underwriting guidelines. Lenders are much more likely to make allowances and exceptions for clients with larger down payments.
How Your Down Payment Affects Your Offer
Your down payment amount also affects how you write your offer to purchase a home. In most provinces, you’re required to put your down payment information in the offer. What’s more, different financing programs have different rules which also affect how you write your offer.
For example, if you’re planning to request that the seller pay all or part of your closing costs, you’ll first need to be certain that your mortgage program allows for this demand. Some mortgage programs will allow a seller to pay for certain types of costs, but not other.
Before you start checking out ads, reviewing neighbourhoods, and interviewing realtors, make sure you take a good, long look at your finances. Your down payment will ultimately affect how your approach each of these decisions.