What You Should and Shouldn’t Do with Your Down Payment

So you’ve sacrificed nights out, a new car, and fancy gadgets for a couple of years so that you could save enough for a down payment on a new home. You’ve also found your dream home and have found a mortgage lender willing to work with you. All you have to do is hold on to your down payment until closing. Easier said than done for many people, but please don’t touch the money or else you might delay the sale or blow your chances before getting all the sale and mortgage paperwork signed.

You might end up no longer qualifying for the mortgage, which means that you’d be defaulting on your contract, and in turn won’t get back the money you gave the seller for the good faith deposit, not to mention the money you used for due diligence and legal fees.

What to Do with Your Down Payment

It’s incredibly vital that you separate your down payment from your other funds. Consider having a lawyer or title company keep it in escrow. If you think you could keep it safe and not spend it, deposit it a separate bank account or withdraw the money from your bank and obtain a certified check with the title company as the recipient, suggests a top mortgage lender in Gilbert. Doing so would reduce the chances of your down payment being used on something else before closing.

What Not to Do With Your Down Payment

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Don’t deposit your down payment in someone’s else’s bank account, yes not even your parents’ or significant other’s account because your lender has to know that the money is coming from you and not form someone else. Likewise, if you’re significant other suddenly decides to break up with you and withdraw all the money in his or her account, including your down payment, then you’re left with zero down payment. Don’t also consolidate your funds before closing. If your money is stored in multiple accounts or you have yet to sell stocks to get money for your down payment, you need to do so at least one or two months before applying for a mortgage. The entire process would go more smoothly if your lender knows where your down payment is.

What Happens If You Don’t Have Your Down Payment at Closing

Aside from defaulting on your contract with the lender, delaying or losing the sale entirely, depending on the sale agreement and state law, the seller could sue you for reneging on the deal as well. If the seller gives you more time to complete your down payment, you would most likely be charged with a fee for every day you delay the sale. Keep in mind that your seller is still paying insurance, taxes, and others on the house so you are delaying the sale might increase the seller’s expenses.

Put simply, don’t touch your down payment until closing time. Don’t even look at it. Keep it safe and only take it out from when the time comes that you need to pay the down payment at closing.

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