Building Your Down Payment
Many folks who are looking to purchase a new house qualify for various loan programs, but they can't afford a large down payment. Here's where to get started
Tighten your belt and save. Be on the look-out for ways to trim your expenses to save toward a down payment. You also could enroll in an automatic savings plan to have a portion of your payroll automatically deposited into savings. You could look into some big expenses in your budget that you can give up, or trim, at least temporarily. For example, you might move into less expensive housing, or skip a vacation.
Work more and sell items you do not need. Maybe you can get an additional job and build up your earnings. You can also get creative about the items you may be able to sell. Multiple small things may add up to a nice sum at a garage or tag sale. Also, you might want to think about selling any investments you own.
Borrow your down payment from your retirement plan. Check the provisions of your particular plan. Many homebuyers get down payment money from withdrawing from their IRAs or getting money out of their 401(k) programs. You will need to ensure you are knowledgable about any penalties, the effect this could have on your taxes, and repayment terms.
Ask for assistance from generous family members. Many buyers somtimes get help with their down payment assistance from caring parents and other family members who may be willing to help them get into their own home. Your family members may be pleased at the chance to help you reach the goal of having your own home.
Learn about housing finance agencies. Special loan programs are extended to buyers in specific circumstances, such as low income purchasers or homebuyers planning to remodel homes in a targeted area, among others. Financing through a housing finance agency, you may be given an interest rate that is below market, down payment help and other benefits. These kinds of agencies may assist you with a reduced rate of interest, help with your down payment, and offer other advantages. These non-profit programs exist to promote home ownership in particular neighborhoods.
Explore no-down and low-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 significant role in aiding low to moderate-income buyers qualify for mortgages. Part of the U.S. Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) helps individuals get
FHA helps first-time buyers and others who would not be eligible for a traditional mortgage loan by themselves, by providing mortgage insurance to the private lenders.
Interest rates with an FHA mortgage typically feature the current interest rate, while the down payment amounts with an FHA loan will be less than those of conventional loans. Closing costs can be included in the mortgage, and the down payment may be as low as 3 percent of the total.
- VA loans
With a guarantee from the Department of Veterans Affairs, a VA loan qualifies veterens and service people. This specialized loan requires no down payment, has reduced closing costs, and provides the advantage of a competitive rate of interest. While the VA does not actually finance the loans, it does issue a certificate of eligibility to apply for a VA loan.
- Piggy-back loans
You may fund a down payment using a second mortgage that closes with the first. Usually the first mortgage covers 80% of the purchase amount and the "piggyback" is for 10%. The homebuyer covers the remaining 10%, instead of needing to pull together the typical 20% down payment.
- Carry-Back loans
In a "carry back" agreement, the seller agrees to lend you a piece of his home equity to help you get your down payment funds. You would borrow the majority of the purchase price from a traditional lending institution and borrow the remaining amount from the seller. Usually you'll pay a somewhat higher interest rate on the loan financed by the seller.
The satisfaction will be the same, no matter which method you use to get together your down payment. Your new home will be your reward!
Want to discuss down payments? Call us: 504-866-5626.
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