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“Home Loan” by cafecredit is licensed under CC BY 2.0

Tiffany from Hope Mills writes: How much money do I need in savings to buy a home? There are so many loan choices; how do I get started?

Tina says: Tiffany, thank you for your question. Deciding to buy a home can seem daunting, but don’t be discouraged.

When preparing to buy a home, the first thing many homebuyers do is look at the ads and listings on the internet. Before you call anyone, look at your savings. Determining how much money you have for a down payment and closing costs affects almost every aspect of buying a home – including how you write your offer, the loan programs you qualify for, and interest rates.

If you only have enough available for a minimum down payment, your choices of loan programs will be limited to only a few types of mortgages. If someone is giving you a gift for the down payment, your options are also limited. If you have enough for the down payment, but need the lender or seller to cover any part of your closing costs, this further limits your options. If you borrow 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.

Loan choices include such programs as conventional fixed rate loans, adjustable rate mortgages, USDA, buydowns, VA, FHA, graduated payment mortgages, and more. To shop for interest rates, you need to have an idea of what your down payment will be. Some loan programs charge a slightly higher interest rate for minimal down payments. Interest rates for different loan programs are not all the same. The lender will be able to tell you which programs fit and quote rates accordingly.

Your down payment also affects how you write your offer to purchase. Your down payment information is written in the offer, and different loan programs have different rules that affect how you write it. This is especially important when dealing with, USDA, FHA, and VA loans. If you are asking the seller to pay closing costs, be certain your loan allows that. For smaller down payments, lenders allow the seller to pay less closing costs. 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, lenders may be fairly strict about having you conform to their underwriting guidelines. For larger down payments, they may make exceptions to the rules. As you can see, the down payment affects every choice you make when you buy a home. You should familiarize yourself with neighborhoods, learn about prices, and read as much as you can. However, 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.

Written by Tina Dawson