When one decides to buy their dream home, the first thing that usually comes to mind when looking for interesting and potential homes for sale are online listings of homes for sale and adverts in newspapers and magazines. Other would-be homeowners study the nuances and intricacies of the home buying process. They read references and articles like this one in order to learn the basics of home buying. Before you make your next move including talking to your realtor and shopping for the mortgage that offer the best terms, it is important that you look at one important aspect of your financial profile – your savings.
Why is it important for you to consider your savings when planning to purchase your dream home?
It is essential that you know how much money is available for the down payment and closing costs. In fact, your savings is one of the important bases in determining your budget range in as far as the type of home property you can afford to buy. It will also help you decide how to make your purchase offer, determine the loan programs that are appropriate for your current financial position and the best rates and deals that you can get from lending companies.
If your savings is just enough to cover the minimum down payment, then your range of choices of mortgage will also be limited. In the same manner, if you are receiving a gift to cover a portion or the whole amount of down payment, then your options will also be limited. On the other hand, if you have sufficient funds to cover the down payment, but still need financing for the closing costs, your options will still be limited. Finally, you will follow a different set of rules if you are intending to borrow a portion or the entire amount of your down payment using your 401K or retirement plan.
However, if you have sufficient funds for the down payment and closing costs, you will also have better options.
Your range of choices will include mortgage programs such as the traditional fixed rate loans, buy-downs, adjustable rate loans, graduated payment loans, FHA, VA and variations of each of these major loan types. One of the main reasons why you need to work on your numbers in as far as your savings is concerned is because this will have a significant impact on the rates that will be offered to you by lending companies.
As a general rule, lending companies will charge higher rates for loans that require lower down payment. In addition to this, different rates are applied for different loan programs. For instance, FHA, VA and conventional loans offer fixed rates. If you don’t have a general idea which type of loan program is most appropriate for your requirement and current financial position, then it is best that you consult with the loan officer of the lending company.
Your savings will also affect how you are going to make your purchase offer. Aside from the amount of down payment that you must indicate in your offer, different loan programs have their respective guidelines and rules regarding home purchase offers. This is particularly important when dealing with VA and FHA loans.
If you are planning to negotiate with your seller to assume all or a portion of the closing costs, make sure that this is allowed in the loan program. Finally, the amount of down payment that you can raise will also affect your chances of getting a loan. Lending companies are fairly strict with applications for loans that require a minimum down payment. Most lending companies are open to concessions and special deals for loans with larger down payments.