Q: Is A Big Down Payment Really Important

Category: Finance, Mortgages.

There are hundreds of questions that people have when it comes time to select a new mortgage or buy a home.

Q: When's the best time to buy a house? Heare are five of the the most common home loan questions. A: The best time to buy a house is when you' re ready. Even in markets with modest gains in housing prices, there are tremendous tax advantages to owning your own home. Although housing prices fluctuate, traditionally they have increased over time. There are also huge quality of life issues involved.

If you have children, the security of owning your own home, and giving them a backyard to play in, is priceless. It's great to know that you' re the King or Queen of your own castle. Q: Should I pay off all my debts and bills before applying for a mortgage? Before you rush to pay off student loans, a new car loan or other obligations, talk to your lender. A: Not necessarily. Paying off bills may be a bad idea if it depletes your savings or reduces your down payment.

On the other hand, paying off some debt may be wise if you need to lower your total debt- to- income ratio. Either one presents the appearance that you are living beyond your means. A good way to approach this is to be prequalified for the loan. Q: Is a big down payment really important? Most lenders will offer advice on how to improve your financial situation before you actually apply for the loan. A: That depends on your situation. However, you may not want to use them.

There are a wide variety of loan products available today that make home ownership possible for almost everyone, even without a down payment. Historically, people who buy without a down payment are much more likely to default on their mortgages. Higher default rates mean higher interest rates. It's really simple an owner who has invested more in a home, is going to work harder to keep it, because they have more to lose. So, if you have little or no down payment, you are likely to end up paying a higher interest rate than someone with a large down payment. Many people, especially first- time homebuyers, start with a 5% down payment.

Conventional mortgages usually involve a down payment of 20% or more. The highest interest rates are usually charged by lenders when there is no down payment. Q: How important are debt ratios? There are even 100% financing programs that will allow you to purchase a home with no money down. Debt ratios are general guidelines, not hard and fast rules. They like the total monthly obligations to be no more than 36% of gross income.

Many conventional mortgage lenders like to see a 20% down payment with a house payment that is no more than 28% of gross income. But, those are only guidelines. Don' t let a higher debt ratio keep you from buying the home of your dreams! Mortgage lenders make exceptions to the guidelines every day, based on the buyer's total financial position and credit history. Q: Can senior citizens get a mortgage? Many senior citizens pay a higher percentage of their income for housing, than people in other age groups.

Yes! Also, years of experience has shown that seniors tend to be good credit risks. Often, seniors are approved for a higher debt ratio than usual. For that reason, many lenders have more lenient standards for seniors.