Getting the Best Loan when Downsizing Your Home

Focus on getting the best loan when downsizing your home because it’s the perfect time to take advantage of liquid assets and use it as leverage. You may not see the savings up front, but you can be sure that you’ll be able to save over time, both in your expenses with the smaller house and with the payments you need to make for your loan. Shop around to find the best deals, and don’t be afraid to ask questions because you have the upper hand in this situation. 

Do Your Research 

You’ll have the best variety of loan programs available to you because you are downsizing your home. Lenders will want to lend money to you because they will know that you’ll have a lot of money available from the downsizing. As such, make sure you don’t settle for the first available loan. Compare all of your options. Ask about the lenders' rates and have them explain all of their fees. Remember that you’re in the position to negotiate for the best deal because you’re a prime borrower. 

Make a Bigger Down Payment 

The sale of your larger home will provide you with the ability to invest at least 20% of the cost of the home for the down payment of the smaller space. This big initial investment will feel like a loss in the short run but will be influential to your long-term savings by proving to lenders that you’re a low risk client. Not only will you save on interest, but you’ll also have a wider variety of loans to choose from. When deciding on the amount of down payment you’ll make, make sure that you have enough money set aside for closing costs. 

Buy Down Your Loan 

You can choose between two different types of buydowns: a permanent buydown or a temporary buydown. Both options will result in lower payments, which will ease your financial difficulty over time. In a permanent buydown, you pay to obtain a reduced interest rate for the entire loan period until it’s paid. This happens when you close the deal on the smaller home. In a temporary buydown, you can lower the interest rate for the beginning of the loan, which gives you the benefit of smaller initial monthly payments. The interest rate will then slowly increase to its normal rate. 

Shorten the Payback Period 

When you make a big down payment, there is less for you to pay off, and you can afford to cut down the amortization period to less than 30 years. The monthly payments will be higher than typical for your mortgage amount, but you can choose to just continue paying the same amount you paid for the larger house. This is optimal if you’ve had no change in income because it won’t disrupt your typical monthly cash flow. Furthermore, by shortening the payback period, you’re often granted lower interest rates with less compounding over time. Before you know it, you’ll have paid off all of your debts.