Building Your Down Payment

Lots of folks who are looking to buy a new home can qualify for a mortgage loan, but they don't have much to put up a down payment. Here's where to get started

Slash your budget and build up savings. Look for ways to reduce your expenses to put away money for a down payment. Also, you can look into bank programs through which some of your paycheck is automatically transferred into savings each pay period. You would be wise to look into some big expenses in your spending history that you can give up, or trim, at least temporarily. Here are a couple of examples: you might move into less expensive housing, or skip a vacation.

Work a second job and sell items you do not need. Perhaps you can get a second job and save your earnings. You can also get creative about the items you can sell. You may own desirable items you can put up for sale at an online auction, or household goods for a tag or garage sale. Also, you might want to consider selling any investments you own.

Borrow from a retirement plan. Research the specifics for your particular plan. Many homebuyers get down payment money by withdrawing from their Individual Retirement Accounts or borrowing from their 401(k) plans. Make sure you comprehend the tax ramifications, repayment terms, and possible penalties for withdrawing early.

Ask for help from members of your family. First-time homebuyers are sometimes fortunate enough to get down payment help from thoughtful parents and other family members who are prepared to help them get into their first home. Your family members may be willing to help you reach the goal of owning your own home.

Research housing finance agencies. Provisional mortgate loan programs are offered to homebuyers in specific circumstances, such as low income purchasers or buyers looking to improve homes in a specific part of town, among others. Financing through this kind of agency, you may be given a below market interest rate, down payment help and other advantages. Housing finance agencies can help eligible buyers with a reduced interest rate, help with your down payment, and provide other benefits. The principal goal of not-for-profit housing finance agencies is promoting the purchase of homes in particular areas.

Learn about low-down and no-down mortgage loan programs.

• Federal Housing Administration (FHA) mortgages

  The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), plays a critical part in helping low and moderate-income Americans qualify for mortgages. Part of the U.S. Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) helps individuals get FHA provides mortgage insurance to the private lenders, enabling buyers who will not qualify for a typical loan, to obtain financing. Interest rates for an FHA mortgage are usually the current interest rate, while the down payment for an FHA mortgage will be below those of conventional loans. Closing costs may be covered by the mortgage, while your down payment can be as low as 3 percent of the total.

• VA mortgages

  With a guarantee from the Department of Veterans Affairs, a VA loan is offered to veterens and service people. This specialized loan requires no down payment, has mimimal closing costs, and provides the benefit of a competitive interest rate. Even though the loans aren't actually issued by the VA, the department certifies borrowers by issuing eligibility certificates.

• Piggy-back loans

  You may finance your down payment through a second mortgage that closes at the same time as the first. Most of the time, the first mortgage is for 80% of the purchase amount and the "piggyback" funds 10%. Instead of the traditional 20 percent down payment, the buyer just has to cover the remaining 10 percent.

• Carry-Back loans

  In a "carry back" situation, the seller agrees to lend you part of his home equity to help you with your down payment funds. In this scenario, you would borrow the largest portion of the purchase price from a traditional mortgage lending institution and borrow the remaining amount from the seller. Usually this form of second mortgage will have a higher rate of interest.

No matter how you gather your down payment, the thrill of reaching the goal of owning your own home will be just as great!

Want to discuss the best options for down payments? Call us at 1-800-606-2794.