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How does down payment affect the ability to get a mortgage?


GlitterGal
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My husband and I have been working like crazy on cleaning up our credit in preparation to purchase a house. Unfortunately, we seem to be in a strange situation, as locally the requirements on credit seem to keep going up, just as we hit the marks.

We have a good mortgage broker that we like, but I thought I would ask around here before I ask him.

We are getting a large sum of money in about 3 weeks. This would be enough money to put around 50% down on the houses we've been looking at. Our major desire is to have a very low monthly payment.

(Keep in mind, we are in Oklahoma. We have been deemed "recession proof", but we are starting to see the effects of the poor economy. Cost of living here is quite low.)

Anyway, we are wonding if the percentage of down payment would have a major impact on the ability to possibly get a conventional mortgage. I would, ideally, like a 15 year fixed rate with no pay off penalty. Could we put 20% down and reasonably expect to qualify for the mortgage?

Thanks!

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The down payment is a very important factor in your purchase now. Additional down payment is considered a mitigating factor (that's a good thing).

I have not seen your credit profile, so I do not know the details, but if there are 'issues' with your credit, you usually can cure them with additional down payment! ;)

You certainly have enough funds to work with if you can put down as much as 50%! But really, if he can not issue the loan with 20% down (and you actually trust this broker) then usually you can go to 25% down and make it work. Of course, this depends upon your debt to income ratios and other factors. I am assuming you are looking at a property that is well within your budget and less than you qualify for based on current income and debts.

As to the payments - that is directly dependent upon the loan terms - rate, balance, etc. Make the mtg broker give you a good faith estimate for each senerio you are considering.

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Just another note, I'd first try to go conforming with 20% down. The rates right now are fantastic- around 4.75%-5.00% (credit depending).

And if you are planning on being in the home for a long period of time (> 5 years), and you have cash upfront, then consider buying down the loan as much as possible. You'll likely spend 3 points (3% upfront) to buy it down 0.75%, which means you break even after a couple of years. Then after year thereafter, you reap the benefits with a fixed lower interest rate.

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jq26 brings up an excellent point.

Buying down the mortgage rate is an excellent idea - but you must be willing to not refinance or the $$$ is just thrown away. Besides in a less than 5% environment, why would you consider refinancing? Buy downs are great for long term planning.

Many people that find themselves currently upside down in their homes would not have been upside down at all - except that at some point after their purchase they either refinanced or pulled out equity thru a HELOC.

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Thanks so much for the info!!

I think I'm going to have to bail on this guy, though. He started out great, but when we talked to him last night about down payments and credit scores and told him that we were thinking of going a different route than the USDA loan, he told us that we probably wouldn't qualify.

He says that standards state-wide are now that you need a 700 credit score for anything, including FHA and USDA. It seems like that is a sudden and sharp credit score mark in a market that is, essentially, business as usual. When the mortgage crisis started, sure the credit score mark went up, but it didn't keep going up.

And buying down the points is especially easy, because there is now first time homebuyer grants available in our state to buy down points.

We have had a new thought (can you tell that we know we want a house and land, but haven't firmly settled on anything yet?)....We might purchase the land outright and have a house built. The question then becomes could that be financed by an FHA or USDA loan once the house is finished? Obviously, we would need a construction loan until then. We have found some good local builders who do residential metal buildings that we could easily have put up for under $50,000.

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