Putting Together Your Down Payment
It is not uncommon for many folks to qualify for a new home loan, but fall short when it comes to the down payment. We have some solutions.
Slash the budget and build up savings. Without increasing your income, reducing your budget is the most common way to put away money for a down payment. Here are some suggestions:
- Enroll in an automatic savings plan at your bank where a percentage of your direct deposited payroll check is automatically put into savings.
- Move into less expensive housing for a season.
- On your next vacation, plan on doing something local.
- Become more conscious of your everyday spending. Buy only things on sale or with coupons. Do price comparisons on food purchases.
- Take advantage of online coupon programs such as Groupon.
- Eliminate premium cable or satellite channels.
- Examine your cable, satellite, phone bills to see where you can eliminate extras.
Work a second job (side gig) and sell things you don’t need. Pick up some part-time work outside of your regular job. An extra hundred or more per week can add up quickly. Also, you can look at items you have that you could sell in a garage sale or online on such platforms as Facebook Marketplace, Craigslist or Offerup. In addition to that, you may have investments that could be sold to build up your down payment savings.
Borrow funds from your retirement plan. Most 401(k) and IRAs give you the option of borrowing funds from your individual plan. This is an option that you can exercise only if you are thorough in your research and exploration of the pros and cons of this option. You need to understand the tax ramifications, repayment terms, and penalties for making an early withdrawal from your account.
Ask for assistance from family members. First-time homebuyers sometimes obtain help with their down payment from giving parents and other family members who may be eager to help you get into your home. Although it may be awkward and uncomfortable to ask for help, many may be eager to help you achieve the goal of homeownership if you let your family know you are looking.
Research housing finance agencies. These agencies, most of which are non-profit offer provisional loan programs for low and moderate-income buyers. Programs include:
- Buyers who are interested in renovating a house within a specific neighborhood of a city.
- Veterans who are first time home buyers.
- Down Payment Assistance (DPA) – offered by many local governments. Check your local government website for more details.
These agencies can help you with a lower interest rate, provide all or a portion of your down payment, and offer other types of assistance.
Low Downpayment and No Downpayment Mortgage Loans
FHA (Federal Housing Administration) Mortgage Loans
The FHA is a part of the U.S. Department of Housing and Urban Development (HUD) and plays a vital part in aiding low and moderate-income Americans to obtain mortgages.
The FHA offers mortgage insurance to private lenders which helps buyers become eligible for home loans. Also, down payments for FHA mortgages are smaller than those with traditional mortgage loans, although these mortgages hold current rates of interest. It is possible to get a down payment as low as 3 percent and closing costs can be financed into the mortgage loan if you qualify.
VA (Veteran’s Administration) Mortgage Loans
If you have served in the US military, you qualify for a guaranteed loan from the Department of Veterans Affairs. There are specific provisions that need to be met, but these specialized loans require no down payment, have minimal closing costs and offer competitive interest rates. It is important to know that the mortgage loans are not actually financed by the VA, the department verifies applicants by issuing eligibility certificates.
USDA (US Department of Agriculture) Mortgage Loans
USDA loans are backed by the US Department of Agriculture. These loans help people buy a home in a rural area – which is an area with a population less than 20,000 people or an area that is not close to a city or town that has more than 50,000 people. While “rural” may make you think of farmers and cows, close to 97% of the country is in an eligible area. You must plan to live in the property you are purchasing, there are income limits based on the location and size of your household, and up to 100% financing is available for USDA loans.
Piggy-Back loans are offered to help assist with the down payment. The way it works is you apply for a second mortgage that closes at the same time as the first. Typically it is 10 percent of the purchase price and the first mortgage is 80% of the purchase price. With this type of arrangement, you are now only required to cover the remaining 10% of the required 20% down payment.
To find out what options you have and what you can qualify for, speak to one of our licensed and experienced mortgage professionals today!