Many people want to purchase a home, but also have a difficult time coming up with the down payment. While income may be good, everyday and monthly living expenses make it almost impossible to save the amount of funds that are necessary to obtain a mortgage. However, when searching for down payment options for a home purchase, they may find that it is actually possible.
1. Conventional mortgages require a down payment of 20% which can be a large sum of money for the first time home buyer to save. There is a minimum down payment requirement of 5 to 10% which will depend on the individual lender. Any amount below 20% will require that the borrower pay private mortgage insurance along with the monthly mortgage payment. With a conventional loan, putting the most down as possible is important because it will result in a better loan and lower mortgage rate.
2. Government loans offer better options when it comes to down payments. FHA loans require a low 3.5% down payment with a minimum credit score of 620 and maximum debt to income ratio of 43% for automated underwriting. In addition, FHA offers borrowers many other benefits, such as 6% seller concessions. These loans are also assumable which means they can be assumed by the buyer, who must be approved, when the borrower decides to sell the home. FHA loans also have an upfront mortgage insurance premium paid at closing and an annual mortgage insurance premium that must be paid for the life of the loan or until the loan is refinanced with a conventional or other type of loan.
3. VA loans have no minimum down payment requirement. In fact, most VA loan borrowers use this as a means of 100% financing. However, a borrower must be eligible according to VA guidelines. VA loans do have a one time VA funding fee.
4. FHA mortgages offer sweat equity loans which allow a borrower to perform their own work in lieu of a portion of the down payment.
5. FHA mortgages also offer bridal registry loans which allows others to deposit funds to a bridal registry that will be used to fund the down payment of the mortgage.
6. Gifts are an acceptable part of obtaining a mortgage and are often used with FHA loans. However, gifts must meet the program’s guidelines for approval. The gift can be from family, friends and even employers. There are specific rules that must be followed regarding proof, sourcing and transfer of funds.
7. Many states, counties and cities offer housing initiatives to assist with the down payment for first time home buyers. These funds are usually in the form of low interest loans or bonds. Each one has its own guidelines for repayment with some having no repayment as long as the borrower remains in the home.
8. Some employers offer down payment assistance as a benefit after the employee has worked a certain period of time.
9. For second homes or investment properties, some borrowers will use the equity that is available in their primary residence for the down payment.
While saving the down payment funds for a home purchase can take some time, home buyers should keep up to date with what additional avenues of assistance are available to them. Since most down payment assistance programs are refunded on a regular basis, borrowers should keep in touch with the latest updates in their area or state. It is also not unusual for new local programs to crop up unexpectedly. The important thing is to keep saving, keep looking and not give up.
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