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Cash is King: How your Down Payment Drives the Homebuying Process

Cash is KingWhen looking for the perfect home to buy, many people give a great deal of consideration to the location of the home, the home’s amenities and the final cost of the home. Given the many programs that are available to assist with purchasing a home, many fail to consider how their down payment will have an effect on the entire home buying process. Yet, when it comes down to it, your down payment will have a long-term effect that will be felt all the way until you have paid off your home. Whether Austin real estate or a home in Idaho, here is a look at five ways your down payment drives the home buying process and why it is best to have as large of a down payment as possible.

#1: Opening Up Your Financing Options
While some lenders will let you put down as little as 3% toward your down payment, most require at least 5%. If you are not able to pay this minimum amount, the number and type of financing programs available to you will vary. If you have a large down payment, on the other hand, you will have many different financing options available to you.

#2: Reducing the Paper Trail
If you have to get help with paying your closing costs or if you need to use a gift from someone else to pay for your down payment, you will need to provide additional documentation before you can take out a loan. If your parents gift you the money you need for your down payment, for example, you will need to provide proof that the money left their account and was put into yours. The lender will also take a more thorough look at your financial records, which will involve providing the lender with things such as your credit card statements, bank statements, tax forms and cash deposits.

#3: Getting a Lower Rate
The more money you put down on your home, the better your interest rate is likely to be. Interest rates also differ based on the type of loan you get, and a larger down payment will make you more likely to qualify for a loan with a better rate. Over the long run, this improved rate can potentially save you tens of thousands of dollars over the life of the loan.

#4: Increasing Negotiating Power
If you have a larger down payment, sellers will see you as a more serious buyer. Therefore, a larger down payment will provide you with more negotiation power that will help you land the home you are interested in buying.

 About The Author - Eric Bramlett is co-owner and broker of One Source Realty and specializes in Steiner Ranch & Central Austin real estate.

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