Q & A: How Much Down Payment is Wise When Buying a Home?

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My husband and I are looking to buy a home. We have a nice amount of money saved and we were going to put 30% down to make our mortgage payments smaller. A friend told us that we should put less down so we have money in the bank if things break, etc. What do you suggest?

It really depends on how much you have available. When you purchase a home, it's almost inevitable that something will break, or something needs to be updated. It's important to have some money on the side for these things.  However, you need to be comfortable with the housing payments you are looking at. It's basically a two-way street, the payment needs to make sense for you, but it is important to leave some funds on the side for "incidentals" that are bound to arise either with your new home or with life, in general.

What does it mean when they talk about paying with points? What does that mean and how does it work?

Points are a percentage of the mortgage amount. One point equals one percent of the loan amount. The way it works is: paying points lowers the interest rate on the mortgage.  How much it gets lowered varies day to day depending on the pricing but, traditionally, 1 point should lower the rate approximately .25%. The monthly savings would equal the 1 point you paid in a little over 5 years.  There are circumstances where it can be a quicker payoff, or a longer payoff, it just depends on the day. Sometimes it can be a good investment in your long-term future.

What exactly is a loan modification? How can someone qualify? 

A loan modification occurs when your lender agrees to alter your payment without doing a full re-finance. Qualifying varies from lender to lender. It often does look to benefit people who demonstrate they cannot repay their mortgage and/or should not have ever been granted the mortgage, but were due to overly lax guidelines in the past. That isn't always the case, but seems to be in the majority of situations. Loan Modifications generally lower interest rates, but can be difficult to attain.

Dottie Herman is CEO of Douglas Elliman. If you have a real estate question for Dottie, please send it to: Reporters@WPCnews.com