Tips for Accumulating a Down Payment
Below are a series of ways to make your dream of home ownership attainable:
Save
Analyze your budget and find ways to cut out the “fat”. How can you reduce your monthly expenditures? Reduce dining out, carpool or enroll in an automatic savings plan at your bank where a portion of your payroll is automatically transferred into your savings account.
Borrow the Down Payment from Your Retirement Plan
Oftentimes you can make an early withdraw from your 401(k) or IRA account based on your provisions. Check with an accountant to and make sure you understand the tax consequences, repayment terms and/or possible early withdraw penalties.
Move
You may love that posh apartment you are living in with the two extra bedrooms for out of town guests, but if you move to a smaller apartment that is less lavish, you may be able to save some additional funds.
Reduce Other High Interest Debt
If you have high interest credit cards that you carry a substantial balance on, it may be best to pay them off. This will initially reduce your savings, but the money that you end up saving will definitely pay-off in the long run.
Make a Deal with the Seller
Depending on the home and circumstances, it may be appropriate to ask the seller to “carry back” a second mortgage to help cover your down payment. In this case, the seller loans you part of his or her equity. You would finance the majority of the loan with a traditional mortgage lender and finance the remaining amount with the seller. Typically you will pay a slightly higher interest rate on the loan financed by the seller.
Sell Some Investments
Get a Second Job and Save Those Earnings
Skip a Year’s Vacation
Get a Gift from Family Members
Parents and other family members are often anxious to help children (or grandchildren) buy their first home. Depending on the loan type, family members may be able to give you a gift for a portion or all of your down payment.
Alternative Sources
Get a no down or low down payment mortgage.
· 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 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.
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.
· Piggy-back Loans
A second mortgage that closes with the first. Often the first mortgage is for 80% of the purchase price and the "piggyback" is for 10%. The home buyer covers the remaining 10% with their down payment. (Some lenders will write a second mortgage of 15% or even 20% of the purchase price.)
A second mortgage that closes with the first. Often the first mortgage is for 80% of the purchase price and the "piggyback" is for 10%. The home buyer covers the remaining 10% with their down payment. (Some lenders will write a second mortgage of 15% or even 20% of the purchase price.)
· 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 can allow you to receive a below market interest rate, down payment assistance and other incentives.
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 can allow you to 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 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.
