The amount you have available for a down payment will affect the types of loans for which you can qualify. Down payments typically range from 3.5 to 20 percent of the sales price for the property, though there still are a few select programs allowing you to obatin mortgage financing with no money down at all.
Tips for Accumulating a Down Payment
Save Look for ways to reduce your monthly expenditures to save money toward a down-payment. You could enroll for an automatic savings plan at your bank to have a portion of your payroll automatically transferred into a savings account or money market. Most people save a couple of years for their down payment. Have a systematic plan for your down payment savings makes it much less painful and you'll be surprised how quickly it accumulates!
Use Your Tax Refund
Instead of using your tax refund check to buy a new LCD television, consider using these resources toward the down payment on your home. Yaur tax return can be filed within 24 hours by clicking on the link below.
Borrow the down payment from your retirement plan Check the provisions of your retirement plan. You can borrow funds from a 401(k) plan for a down payment or make a withdrawal from an Individual Retirement Account. Be sure you understand the tax consequences, repayment terms and/or possible early withdrawal penalties.
Move You may be able to save additional funds if you can move into less expensive housing while saving for your down payment.
Reduce other higher interest rate debt Paying off credit cards will initially reduce your savings, but the money you will save from higher interest rates will pay-off in the long run and make your debt ratios more attractive to your lender. Be sure not to close out your credit card though as this may hurt your credit score.
Make a deal with the seller In some circumstances, it is appropriate to ask the seller to carry a second-mortgage to cover your down payment, or to fund some closing costs. Typically, you will pay a slightly higher rate for this second mortgage.
Sell some investments
Get a second, part-time, or seasonal job and save your earnings
Skip a year's vacation
Gift from Family Parents and other family members are often anxious to help children buy their first home and may have the means to give you a gift of money for a portion or all of your down payment.
Alternative Sources
No-down and low-down Mortgages
FHA Loans The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), plays a significant role in helping low- to moderate-income families qualify for mortgages. FHA assists first-time buyers and others who would not qualify for a conventional loan, by providing mortgage insurance to private lenders. Interest rates for an FHA loan are usually the going market rate, while the down payment requirements for an FHA loan are lower than conventional loans. The required down payment can be as low as 3.5 percent and the closing costs can be included in the mortgage amount.
VA Loans VA Loans are guaranteed by the U.S. Department of Veterans Affairs. Service persons and veterans can qualify for a VA Loan, which usually offers a competitive fixed interest rate, no down payment 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.
Housing Finance Agencies These agencies offer special loan programs to low- and moderate-income buyers, buyers interested in rehabilitating a home in a targeted area, and other groups as defined by the agency. Working through a housing finance agency, you can receive a below market interest rate, down payment assistance and other incentives.
The primary mission of Housing Finance Agencies is to boost home ownership in certain targeted areas, among first-time buyers and those with little money for down payments. Most of these non-profit agencies were funded with state government seed money and now operate independently.
Click here for a list of Housing Finance Agencies.
Documenting Your Down Payment
Documenting that the down payment comes from your savings and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.
Take extra care to document the sources for any monies to be used for the down payment or closing costs, particularly gift funds.
Acceptable Down Payment & Closing Costs Sources
Cash in a bank account
Mutual funds / stocks / IRA / 401K
Proceeds from the sale of another property
Gift from an immediate relative
Click here to learn more about verifying your down payment, closing costs, income and debt.
