As housing demand increases and the supply decreases, sellers take control of the market with a variety of offers to choose from. As a buyer though, it’s a disappointment to know you are one of many potential buyers and you have limits as to what you can do to win over the sellers.
One strategy is for buyers to get ahead of a bidding war and put the best offer forward with the largest down payment option. Typically those who have the bigger down payment get the house. Fewer contingencies also can make a difference. It’s all about who can get into the house the easiest and having a bigger chunk of change is one of the most enticing incentives to be the winning bid.
According to a recent Wall Street Journal article, “Get Smart on Down Payments,” a bigger down payment is a viable strategy to compete for the purchase of a new home, however, the possibility of rate increases this year and the new rules in mortgage interest deductions are affecting how much some buyers are able to use for a down payment.
In the same article, Lawrence Yun, chief economist and senior vice president of research at the National Association of Realtors, explains 30-year mortgage rates are expected to rise to 4.5% by fourth quarter of 2018. The new tax policy allows interest to be deductible only on mortgage debt up to $750,000, down from $1 million. These two factors change the down payment strategy, specifically for the luxury market.
A buyer may have less money available to use for a down payment particularly for those Jumbo loans and unfortunately the result is less buying power when in a bidding war. However, as mentioned in the article, not all Jumbo loans require large down payments and more lenders are offering lower down payment options such as 5 or 10% for Jumbo loans.
With a robust economy, rising interest rates and more competition for housing inventory, a down payment strategy can significantly impact the purchase of a new home. To get the dream home you’ve always wanted, it’s time again to start using the down payment as an effective strategy.