The Home Buyer's Korner

Information presented should be used for educational purposes only.

January 8th, 2014

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Making A Down Payment

DownpaymentHome buyers face several challenges when deciding how much money to put down on their home purchase and much can depend on the type of mortgage you plan on getting.  Whether to put down a larger down payment or to take a portion of your money from your down payment and use it to pay “discount points” to lower your interest rate could be a good or not so good option. There are pros and cons to doing both and each home buyer’s situation will be different, so it’s important to understand which option is best for your individual needs.

Factors You Want To Consider Include:

  1. The Cost of Buying Down Your Mortgage Interest Rate – If you’re concerned with a lower monthly payment and only interested in a fixed rate mortgage you’ll most likely pay an upfront fee called “discount points”. Most lenders will charge approximately one discount point (1% of the loan amount) to lower your mortgage rate by one eighth of one percent in mortgage interest rate. Before you pay any discount points you need to calculate the amount of money you are going to save monthly and then determine how many months it will take to recover your investment, then compare that to how long you plan on living in the home or keeping your mortgage. Remember discount points are tax deductible, so be sure to advise your tax preparer when the time comes and provide them with a copy of your closing statement.
  2. A Larger Down Payment Means More Equity – The larger your down payment means less money you have to borrow and the more equity you have in your home. Making a larger down payment can also effects the mortgage interest rate you will pay; lowers monthly payments; affords potentially better loan terms and possibly not having to purchase mortgage insurance.
  3. Qualifying For A Loan – Home Buyers who are facing challenges qualifying for a mortgage should weigh which option (discount points or larger down payment) is likely to help them qualify. In some instances, using a combination of down payment and lower rates will make the difference. Speak with a network member/mortgage professional who can help you determine which is most beneficial to you and you can use a number of on-line amortization programs that can help you make the right decision for you.

Remember, there is no right answer for all home buyers that need a mortgage to purchase their dream home. All of the factors that impact your mortgage loan and your overall financial situation must be considered when you’re preparing for your home mortgage loan, so be sure to discuss discount points with your loan officer before committing to a specific mortgage loan program.

If you’re interested in learning more about home ownership in your city be sure to visit “The Home Buyer’s Korner” to the top of our blog. Here you’ll find great information from local real estate agents, mortgage lenders and general contractors to assist you in your path to home ownership.

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To print this document click on “Open in New Window” located at the lower right corner; click on “File”; then click on “Print”. In the center of the screen you will have the option to “Create A Printable PDF of the Presentation”.

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