Many buyers can qualify for several different kinds of mortgages, but they can't afford a large down payment. Want to look into getting a new home, but don't know how to put together a down payment?
Cut expenses and save.
Scrutinize your budget to uncover ways you can cut expenses to save for your down payment. You might also try enrolling in an automatic savings plan to have a portion of your pay automatically deposited into your savings account. You could look into some big expenses in your budget that you can do without, or trim, at least temporarily. Here are a couple of examples: you may move into less expensive housing, or stay local for your vacation.
Work more and sell items you do not need.
Maybe you can get an additional job and save your earnings. In addition, you can put together an exhaustive list of things you may be able to sell. Broken gold jewelry can be sold at local jewelry stores. Maybe you own collectibles you can sell at an auction website, or household items for a tag or garage sale. You can also explore what your investments may sell for.
Borrow from your retirement funds.
Research the details for your particular plan. You may pull out money from a 401(k) for a down payment or make a withdrawal from an IRA. Be sure to learn about the tax ramifications, your obligation for repayment, and any penalties for withdrawing early.
Ask for a generous gift from your family.
First-time buyers sometimes get down payment help from caring family members who are eager to help them get into their first home. Your family members may be inclined to help you reach the milestone of owning your first home.
Learn about housing finance agencies.
Provisional mortgage programs are extended to buyers in specific situations, such as low income buyers or homebuyers planning to remodel houses in a particular place, among others. With the help of a housing finance agency, you may get an interest rate that is below market, down payment help and other benefits. These kinds of agencies can help you with a lower rate of interest, help with your down payment, and provide other advantages. The central purpose of non-profit housing finance agencies is to promote the purchase of homes in targeted areas.
Learn about low-down and no-down mortgages.
Federal Housing Administration (FHA) Loans
The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), plays an important role in assisting low and moderate-income buyers qualify for mortgages. An office of the United States Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) helps individuals get FHA provides mortgage insurance to private lenders, ensuring the buyers are eligible for a mortgage loan. Down payment sums for FHA mortgages are lower than those of conventional mortgages, even though these loans have average interest rates. The down payment can be as low as 3 percent and the closing costs may be included in the mortgage.
Piggy-Back Loans
A piggy-back loan is a second mortgage that closes at the same time as the first. In most cases the first mortgage covers 80% of the purchase amount and the "piggyback" is for 10%. In contrast to the usual 20 percent down payment, the homebuyer will just have to cover the remaining 10 percent.
VA Loans
Guaranteed by the Department of Veterans Affairs, a VA loan qualifies veterans and service people. This specialized loan requires no down payment, has limited closing costs, and provides a competitive rate of interest. Even though the mortgages are not actually issued by the VA, the department verifies borrowers by providing eligibility certificates.
Carry-Back Loans
In the option of the seller "carrying back a second mortgage," the seller loans you part of his or her home equity. The buyer finances the majority of the purchase price with a traditional mortgage program and finances the remaining funds with the seller. Usually you will pay a slightly higher rate with the loan financed by the seller.
No matter how you gather your down payment, the thrill of owning your own home will be just as great!
Down Payment Funding Alternatives
For many buyers, especially first-time buyers, saving up the funds for the down payment can be a seemingly insurmountable hurdle to home ownership. This doesn’t have to be the case. As your mortgage broker, I can help you find creative ways to come up with your down payment.
Using a Gift for Your Down Payment
One way to fund a down payment is by using a gift. For many loan programs, a gift may be used for a portion or all of the required down payment. Money given as a gift for a down payment can’t come from anyone. Family members are the usual source. And sometimes an employer may also be acceptable.
If this is an option open to you, please let me know. I can help you determine which loan programs accept gift funds for down payments and who may give the gift. I’ll also supply the gift letter that the person giving the gift is required to sign. The gift letter states that the funds are a gift and will not be paid back.
Down Payment Assistance Charities
If a willing and able family member is not available, buyers now have the option of turning to a non-profit for down payment assistance.
Caution should be taken when searching for a down payment assistance charity (aka down payment assistance program). There are many reputable organizations providing buyer assistance, but there are dubious ones as well. You may want to research the charity with the Home Gift Providers Association (HGPA) (http://www.downpaymentalliance.org/) before making a commitment.
Generally, a down payment assistance charity will give the buyer money for a down payment that does not have to be repaid. The seller will contribute an equal sum to the charity at closing or soon after. The seller will also pay an administration fee to the charity. Sounds good, right?
This can be a good option for buyers who don’t have other means of securing a down payment. However, you should be aware that this means of funding the down payment may inflate the selling price of the house. You’ll want to consult with your real estate professional about how such a program may affect the selling price.
Zero Down Mortgage Loans
Service persons and veterans can qualify for a VA Loan that requires no down payment. VA Loans are guaranteed by the U.S. Department of Veterans Affairs. In addition to no down payment, these loans usually offer a competitive fixed interest rate and limited closing costs. While the VA does not issue the loans, it does issue a certificate of eligibility required to apply for a VA loan.
There are also private sector alternatives that offer 100% financing of the home purchase price. Let me help you find the down payment and mortgage alternative that’s right for you.
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This is a loan production office of Luminate Bank.
2523 S. Wayzata Blvd. Suite 200
Minneapolis, MN 55405
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