Home Buyers: Understanding Down Payment Options

Times are changing. That is always true in the wonderful world of real estate. While typically the trends in the market change, there are tax changes that are challenging how home buyers should handle their down payment.

The down payment is arguably the most important part of getting a mortgage.  Home buyers who are looking to buy soon will want to brush up on these tax changes.

The new tax changes will mostly affect those that are trying to purchase more expensive properties. With the changes, home buyers who are  making a purchase on a $500,000 will have to change the way they are approaching a sale. What they originally planned for a down payment may no longer be sufficient.

Increased Rates

There will be increased rates in 2018. Most 30-year fixed loans are going to see rates closer to 4.5% by the end of the year. This is going to jump up even more at the beginning of 2019. The time to make a purchase is now. Home buyers do not wait until these new rates kick in.

Deductible Interest

Properties that are $750,000 or more will see a change in how their owners can deduct interest. The old guidelines allowed for deduction in properties up to $1 million in value.

With the new law, this is going to be lowered a $250,000. This is a huge jump down, especially for anyone that was looking to make a purchase of a larger home in 2018.  

Jumbo Loans

The limit on a conforming-loan has been changed. If home buyers are looking to get a Fannie Mae or Freddie Mac in 2018, there has been an increase in the limit. The limit was $424,100 and has been increased to $453,100.

In areas where homes typically cost more, the limit is even higher. Once at $636,150, it has increased to $679,650. If a house falls under these limits, it is no longer a jumbo loan, but a conforming-loan.

Higher Rates

When looking to have a jumbo loan and a smaller down payment, there is likely going to be a higher interest rate. Most lenders want to see a substantial amount put down for good faith. With a low down payment, they will hike up the interest rate as the loan is a larger risk.

Many lenders will allow down payments on a jumbo loan to come in as low as ten percent. However, putting twenty to thirty percent down will help to decrease the interest rate. Plus, this will save home buyers a lot of money in the long run as they can make fewer payments to interest.

Prove Funding is Consistent

Nothing makes a lender nervous like a down payment that has suddenly been deposited into a bank account. It is best to have the money for a down payment in the account for at least two months before using it. This will show a lender that the borrower is financially stable and able to make monthly mortgage payments.

The housing market is going to see some big changes, especially for houses that are at the upper end of the market. Anyone who is making a purchase in 2018 is likely to see higher interest rates and may need to come up with a larger down payment. The earlier a purchase is made, the better. Late 2018 and early 2019 will see even higher increases.