I Want to Buy A House. Why Do I Need To Give A Deposit?
We are apparently afflicted with a severely acute case of memory loss.
It has been, what, five years since the real estate market bubble burst, the near collapse of major banking institutions, and the explosion of foreclosures and short sales across this country, and right when we are seemingly beginning to emerge from this cataclysmic mess, buyers are asking why do I have to put money down on a house? This question is not only coming from unqualified buyers, or even from moderately qualified buyers, but it is coming even from buyers who are not only well qualified, but who also have the funds necessary not only to place a down payment on the home they wish to purchase, but to also cover all of the related closing costs.
A person buying a new or even used car from a dealership would not, even under the best of circumstances, walk into such an establishment and expect to walk out of the dealership with a car without having provided some sort of consideration, such as a trade in, or some form of a deposit. It is the exact same process involved when buying a home.
You cannot purchase a home without showing the seller that you are indeed serious about buying. Gone are the days of sub-prime loans, no-doc loans, and minimal credit scores (well, at least I hope. We do not need another repeat of the past decade). Even with programs that offer 100% financing to specific groups of buyers or in specific locations, like VA, USDA, and in CT, CHFA DAP (Downpayment Assistance Program), a earnest money deposit, or downpayment, at the time of the offer, says to the seller that you are committed to purchasing the home.
The deposit is not just about impressing the seller, oh, no. Let's point out a very simple (should be obvious) truth: the amount of money you put as a deposit on the house reduces your mortgage amount. Thus, the more money you give as a down payment, the less your mortgage should be. Then there is also all of those lender requirements to consider as well: with a conventional loan, a standard 20% of the offer price, with less than that usually triggering the addition of PMI (Private Mortgage Insurance) to one's monthly mortgage payments; under current FHA guidelines, a minimum of 3.5% of the offer price is required for the down payment; then there are various other types of loans that vary the amount of down payment required between those two, based on the type of loan, credit scores, and other criteria established by the lender (for more info on that, speak with a licenced mortgage officer).
The simple fact of the matter is, in these days, if you really want to buy a house, you must give a deposit.
Courtesy of William James Walton, Sr. , Realtor, WEICHERT, REALTORS® - Briotti Group
Serving northern New Haven and southeastern Litchfield Counties (Waterbury, Wolcott, Prospect, Naugatuck, Middlebury, Southbury, Watertown, Thomaston and Plymouth)
Call William James Walton, Sr. Real Estate Agent with WEICHERT, REALTORS® - Briotti Group (203) 558-7463 for help with your real estate needs -buying or selling - in Waterbury, Watertown, Wolcott, Middlebury, Southbury, Prospect, Naugatuck, Plymouth and Thomaston