You may ask actually ask this question
in two distinctly different ways. “How much should
I put down?” or “How much will I be required
to put down?” Both are valid questions that should
be answered before you sign on the dotted line for your
load. Take a minute to consider some important points
about your down payment.
First, realize that requirements will vary from one
lender to another. Some may be willing to finance 100
percent of the value of your new home, while others
may limit the amount of financing to 80 or 90 percent
of the value of the home.
Remember that this amount isn’t necessarily what
you’re paying for the home. You may have found
an anxious seller who’s giving you a great deal.
In that case, you may very well get financing for the
entire price you’re paying for the house. You
may also be willing to pay more than the appraised value
of the house. For example, if the house is located next
door to your aging parents and you simply want to live
there, you may be willing to pay more than an ordinary
buyer. In that case, you may have to come up with more
money down because the lender is only willing to loan
90 percent of the market value. Keep in mind that what
makes a house more or less valuable to you personally
may not be what the lender considers to be important.
The lender is going to limit the loan amount to what
can be recovered if you should default on the loan.
The next thing to keep in mind is that you’re
going to have expenses associated with the purchase
that aren’t covered in the loan amount. Insurance
and closing costs may be part of the loan, but you should
ask about those specifics. Moving isn’t free,
even if it’s just across town. You’ll have
utilities – often with deposits – to pay
before you can move in. If you put every penny you have
as a down payment, you may find yourself facing insurmountable
obstacles when you’re trying to get moved.
Finally, keep in mind that every penny you put down
will reduce the amount of the loan. That means you’ll
be facing a shorter pay off period and/or lower monthly
payments. Both can be important factors. You should
also remember that every dollar you put down is one
less dollar to pay interest on, meaning that it’s
actually saving you more in the long run.
Take careful stock of your financial situation before
you decide how much to put down. Then talk to your lender
about requirements and about how much difference it
will make if you put more (or less) down.
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