Building Your Down Payment
Lots of buyers can qualify for various loan programs, but they don't have a large sum of cash to put up the standard down payment. Here's where to get started
Cut expenses and save. Turn your budget upside-down to find ways you can cut expenses to go toward your down payment. You might also decide to enroll in an automatic savings plan to automatically have a set portion of your take-home pay moved into your savings account. Some practical ways to put together funds include moving into less expensive housing, and staying home for your vacation for a year or two.
Sell items you do not really need and find a second job. Try to find an additional job. This can be rough, but the temporary trial can provide your down payment money. You can also seriously consider the possessions you really need and the things you may be able to put up for sale. You might own collectibles you can put up for sale on an auction website, or household items for a garage or tag sale. Also, you might want to look into selling any investments you hold.
Borrow from retirement funds. Explore the details for your individual plan. You can borrow funds from a 401(k) plan for a down payment or withdraw from an Individual Retirement Account. Make sure you understand the tax consequences, your obligation for repayment, and possible penalties for withdrawing early.
Ask for assistance from generous family members. Many homebuyers are often fortunate enough to receive help with their down payment help from giving parents and other family members who may be anxious to help get them in their first home. Your family members may be happy at the chance to help you reach the milestone of having your own home.
Contact housing finance agencies. These agencies offer provisional mortgage loans for moderate and low income borrowers, buyers interested in sprucing up a house in a specific area, and other specific types of buyers as defined by each agency. With the help of a housing finance agency, you probably will receive an interest rate that is below market, down payment help and other incentives. These kinds of agencies can help eligible homebuyers with a reduced rate of interest, get you your down payment, and provide other benefits. These non-profit programs to promote home ownership in specific areas.
Explore no-down and low-down mortgage loan programs.
- Federal Housing Administration (FHA) loans
The Federal Housing Administration (FHA), which functions as part of the U.S. Department of Housing and Urban Development (HUD), plays an important role in assisting low to moderate-income buyers get mortgage loans. An office of the United States Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) assists homebuyers in qualifying for mortgage loans.
FHA aids first-time buyers and others who would not be able to qualify for a typical loan by themselves, by providing mortgage insurance to lenders.
Interest rates with an FHA mortgage are typically the market interest rate, while the down payment amounts for an FHA mortgage are lower than those of conventional loans. The required down payment can go as low as 3 percent while the closing costs could be financed in the mortgage.
- VA mortgages
VA loans are backed by the U.S. Department of Veterans Affairs. Service persons and veterans qualify for a VA loan, which generally offers a reasonable fixed interest rate, no down payment, and reduced closing costs. Although the VA does not actually finance the mortgage loans, it does issue a certificate of eligibility to qualify for a VA loan.
- Piggy-back loans
You may finance a down payment using a second mortgage that closes with the first. Generally the piggyback loan takes care of 10 percent of the purchase price, and the first mortgage finances 80 percent. The homebuyer covers the remaining 10%, rather than putting the usual 20% down payment.
- Carry-Back loans
With a carry-back mortgage, the seller loans you part of his or her home equity. You would borrow the majority of the purchase price from a traditional mortgage lending institution and finance the remaining amount with the seller. Typically you'll pay a slightly higher rate on 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!
Need to talk about down payments? Give us a call at (405) 615-8543.