Down Payment Basics
Putting Together Your Down Payment
If you are looking to buy a new house, but they can’t afford a large down payment. Here are a few straightforward ways to get together a down payment:
Slash your budget and build up savings.
Scrutinize the budget to find extra money to go toward your down payment. There are bank programs in which you can deposit a portion of your paycheck into a savings account each pay period. Some effective approaches to put together funds include moving into a residence that is less expensive, and staying home for your vacation this year.
Work a second job and sell things you don’t need.
Try to find a second job. This can be exhausting, but the temporary difficulty can provide your down payment money. If a second job isn’t a good option, you can also sell items that you don’t need.
Tap into your retirement funds.
Investigate the provisions of your specific program. You may pull out funds from a 401(k) plan for you down payment or get a withdrawal from an IRA. Be sure you comprehend the tax ramifications, your obligation for repayment, and any early withdrawal penalties.
Request a generous gift from family.
First-time home buyers are often fortunate enough to receive help with their down payment assistance from gracious parents and other family members who are eager to help get them in their first home. Your family members may be willing to help you reach the milestone of buying your own home.
Contact housing finance agencies.
These agencies provide special mortgage programs to low and moderate-income home buyers, buyers interested in renovating a house in a specific part of the city, and additional groups as defined by each finance agency. With the help of this kind of agency, you can get an interest rate that is below market, down payment help and other benefits. These types of agencies may assist you with a lower rate of interest, help with your down payment, and provide other assistance. The central mission of not-for-profit housing finance agencies is to promote the purchase of homes in certain areas.
Find out about low-down and no-down mortgages:
Federal Housing Administration (FHA) mortgage loans –
The Federal Housing Administration (FHA), which is inside the U.S. Department of Housing and Urban Development (HUD), plays an important role in aiding low and moderate-income Americans qualify for mortgage loans. Part of the United States Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) aids individuals in getting mortgages. FHA provides mortgage insurance to private lenders, enabling buyers who might not be eligible for a conventional loan, to get home financing. Interest rates with an FHA loan are typically the going interest rate, while the down payment for an FHA mortgage will be below those of conventional loans. FHA loans only require 3.5% down and you can finance the closing costs.
VA mortgage loans –
VA loans are backed by the U.S. Department of Veterans Affairs. Service persons and veterans can get a VA loan, which typically offers a low fixed rate of interest, no down payment, and reduced closing costs. Although the loans are not actually financed by the VA, the department verifies applicants by providing eligibility certificates.
Piggy-back loans –
You can fund your down payment through a second mortgage that closes with the first. Often the first mortgage is for 80% of the purchase amount and the “piggyback” funds 10%. Rather than the usual 20 percent down payment, the home buyer just has to pull together the remaining 10 percent.
Carry-Back loans –
In the option of the seller “carrying back a second mortgage,” the you borrow part of the seller’s home equity.. You would borrow the largest portion of the purchase price from a traditional lending institution and finance the remainder with the seller. Usually you will pay a slightly higher interest rate with the loan from the seller.
The satisfaction will be the same, no matter how you manage to come up with the down payment. Your new home will be worth it!
Want to discuss your down payment? Call us: (678) 539-8100.
Using a gift for your down payment
For many first-time buyers, saving up the funds for the down payment can be a huge hurdle. This doesn’t have to be the case. As your mortgage broker, I can help you find creative ways to come up with your down payment.
One way to fund a down payment is by using a gift. For many loan programs, a gift can be used for a portion or all of the required down payment. Money given as a gift for a down payment can’t come from anyone. Family members are the usual source. And sometimes an employer may also be acceptable. If this is an option open to you, please let me know. I can help you determine which loan programs accept gift funds for down payments and who may give the gift. I’ll also supply the gift letter that the person giving the gift is required to sign. The gift letter states that the funds are a gift and will not be paid back.
Down payment assistance charities
If a willing and able family member is not available, buyers now have the option of turning to a non-profit for down payment assistance.
Down Payment Assistance Programs
Caution should be taken when searching for a down payment assistance charity (aka down payment assistance program). There are many reputable organizations providing buyer assistance, but there are dubious ones as well. You may want to research the charity with the Home Gift Providers Association (HGPA) (http://www.downpaymentalliance.org/) before making a commitment.
Generally, a down payment assistance charity will give the buyer money for a down payment that does not have to be repaid. The seller will contribute an equal sum to the charity at closing or soon after. The seller will also pay an administration fee to the charity. Sounds good, right?
This can be a good option for buyers who don’t have other means of securing a down payment. However, you should be aware that this means of funding the down payment may inflate the selling price of the house. You’ll want to consult with your real estate professional about how such a program may affect the selling price.
Zero down mortgage loans
Service persons and veterans can qualify for a VA Loan that requires no down payment. VA Loans are guaranteed by the U.S. Department of Veterans Affairs. In addition to no down payment, these loans usually offer a competitive fixed interest rate 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.
There are also private sector alternatives that offer 100% financing of the home purchase price. Let me help you find the down payment and mortgage alternative that’s right for you.
There’s just one thing standing between you and your new house…the down payment.
Many home buyers today opt to use funds from their employer’s 401(K) program to come up with the down payment on a house. You ordinarily can’t take money from your 401(K) plan unless you retire, leave the company or become disabled, but many company plans permit certain “hardship withdrawals” when there is an immediate and heavy financial need, including the purchase of the employee’s principal residence.
The drawback to a hardship withdrawal is that you will pay taxes and penalties on the amount withdrawn from your plan, which often must be paid in the year of withdrawal. Your employer is not required to provide hardship withdrawal in your plan. Check with your employer’s human resources department if you’re not sure if your 401(K) plan allows hardship withdrawal.
Borrow Against Your 401(K)
You can sometimes borrow as much as 50% of your account balance. You pay interest on the loan, but the interest goes back into your account. The money you receive is not taxable as long it is paid back and plans can give you anywhere from five to 30 years to pay back your loan.
Be aware of the risks involved with borrowing money from your 401(K). If you lose your job or leave your employer, you must pay back the loan in full within a short period, sometimes as little as 60 days. If the money is not paid back in that time, it is considered a withdrawal from your plan and subjected to the same taxes and penalties. 401(K) accounts can usually be rolled over into a new employer’s 401(K) without penalties, loans from a 401(K) cannot be rolled over.
In addition, because the funds withdrawn from your account are no longer earning compound interest, your account will be smaller when you retire. Also, you’ll be replacing pretax money with after-tax money.