Building Your Down Payment

Lots of folks who are looking to purchase a new house can easily qualify for a loan, but they can't afford a large down payment. Want to buy a new house, but aren't sure how you should get together a down payment?

Reduce expenses and save. Scrutinize your budget to discover ways you can cut expenses to go toward your down payment. You might also try enrolling in an automatic savings plan at your bank to have a portion of your payroll automatically deposited into your savings account. You might look into some big expenses in your budget that you can do without, or reduce, at least temporarily. For example, you may decide to move into less expensive housing, or skip a family vacation.

Sell items you do not really need and get a part-time job. Perhaps you can get a second job and save your earnings. In addition, you can make a comprehensive list of things you may be able to sell. Unworn gold jewelry can bring a good amount from local jewelry stores. A closetful of small things might add up to a nice sum at a garage or tag sale. Also, you can consider selling any investments you own.

Borrow from your retirement funds. Check the parameters of your specific program. Some people get down payment money by withdrawing from their Individual Retirement Accounts or getting funds out of their 401(k) plans. Make sure you are clear about any penalties, the effect this may have on income taxes, and repayment terms.

Ask for help from members of your family. First-time homebuyers are often lucky enough to receive down payment assistance from gracious family members who are prepared to help get them in their first home. Your family members may be inclined to help you reach the goal of buying your own home.

Learn about housing finance agencies. Special mortgage programs are offered to homebuyers in certain circumstances, such as low income buyers or future homeowners planning to renovating houses in a targeted area, among others. Working through a housing finance agency, you probably will be given an interest rate that is below market, down payment assistance and other benefits. Housing finance agencies can assist you with a lower interest rate, get you your down payment, and provide other advantages. These non-profit programs exist to promote community in specific neighborhoods.

Explore no-down and low-down mortgage loan programs.

  • Federal Housing Administration (FHA) loans

    The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), plays a critical role in helping low and moderate-income buyers get mortgage loans. An office of the United States Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) helps individuals get FHA offers mortgage insurance to private lenders, enabling buyers who may not qualify for a conventional mortgage loan, to get financing. Interest rates for an FHA loan are typically the current interest rate, but the down payment amounts for an FHA loan are less than those of conventional loans. Closing costs might be financed in the mortgage, while the down payment might be as low as 3 percent of the total amount.

  • VA mortgages

    Guaranteed by the Department of Veterans Affairs, a VA loan qualifies veterens and service people. This specialized loan requires no down payment, has mimimal closing costs, and provides a competitive interest rate. While the mortgage loans aren't actually provided by the VA, the department verfifies applicants by providing eligibility certificates.

  • Piggy-back loans

    You may finance a down payment with a second mortgage that closes at the same time as the first. Generally the piggyback loan is for 10 percent of the purchase price, and the first mortgage covers 80 percent. In contrast to the traditional 20 percent down payment, the homebuyer just has to pull together the remaining 10 percent.

  • Carry-Back loans

    In the case of the seller "carrying back a second mortgage," the seller loans you part of his or her equity. You would finance the largest portion of the purchase price with a traditional mortgage lending institution and finance the remaining amount with the seller. Typically you'll pay a slightly higher interest rate with the loan from the seller.

The feeling of accomplishment will be the same, no matter which strategy you use to come up with the down payment. Your new home will be worth it!

Want to discuss the best options for down payments? Give us a call: 480-463-4357.

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