More often than not a home owner will borrow the cost of a home from a lender or lending institution. When the borrower takes out a loan, there will often be a down payment, or an initial payment on the loan. The lender may actually assess the risk of the loan by the down payment and adjust the interest rate accordingly. The risk may be assessed because a down payment effectively demonstrates the borrower’s commitment in the investment of the home. The more personal capitol or equity originally infused within the loan or home mortgage, the lower the interest rate may be.

Multiple ways of acquiring a down payment may, out of necessity, be enlisted because of the typical lack of on hand liquid cash ready to be put down on a down payment from the borrower. Of course using ones savings is not a bad idea. Many mechanisms are in place to allow a borrower to remove the equity from the home. Therefore, a home owner can almost think of the down payment and monthly principle payment as a type of savings account for the future. Another source of available cash usable for a down payment is funds that were typically being used to save for retirement such as a 401k or stocks. Owning a home is often considered one of the greatest investments a person may make when preparing for retirement.

Another source of funding a down payment on a home may be the government. Many cities want to inspire growth and development and may offer what could possibly be considered a “grant” to homeowners. Government help options are often times not widely publicized and may take some prodding or the right realtor to discover these hidden nuggets of treasure as the government rarely expects a return or repayment.

An instrumental ratio used to decide the loan amount is called the loan-to-value ratio. The loan-to-value ratio, often called the LTV ratio. The LTV is a way of measuring the down payment as a percentage of the entire home’s value. So if a home is bought at a price of $100,000.00 and the LTV is at 70% then the down payment will need to be 30% or $30,000.00. Being able to meet the set LTV will allow the lender to give the borrower trust and confidence that otherwise would not exist. The lower the LTV or the higher the down payment, the lower the monthly mortgage payment will need to be or the lower the interest rate will be.

What about those first time buyers with a set monthly income at a new job that promises to be consistent and long term, with a great credit history, but no money saved up to offer a down payment? Shopping around lenders could answer this dilemma. Some lenders are happy to offer a “zero-down payment” loan. A bank will consider a first time buyer with an already solid history as a acceptable risk. The catch is the buyer will end up paying a higher interest rate to compensate for the risk of not having a down payment.

Author Bio: Juhlin Youlien is a source on how to get great Chandler AZ homes for sale and Gilbert AZ homes for sale. He also writes about Fountain Hills AZ homes for sale and Tempe real estate

Category: Real Estate
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