Putting Together Your Down Payment
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The Lowdown on Down Payments
Lots of people who would like to buy a new home can qualify for various loan programs, but they don't have much to put up a down payment. Below are a few ways to get together your down payment:
Cut expenses and save.
Turn your budget inside out to uncover extra money to save for your down payment. You also might enroll in an automatic savings plan to have a portion of your payroll automatically deposited into a savings account. Some practical ways to build up funds include moving into a residence that is less expensive, and staying home for your family vacation for a year or two.
Sell items you don't need and find a second job.
Look for a second job. This can be exhausting, but the temporary trial can help you get your down payment. In addition, you can put together a comprehensive list of items you can sell. Broken gold jewelry can bring a good amount from local jewelers. Maybe you own collectibles you can sell on an online auction, or quality household goods for a garage or tag sale. Also, you might want to consider selling any investments you hold.
Borrow from retirement funds.
Research the specifics for your individual plan. You may pull out funds from a 401(k) for you down payment or withdraw from an Individual Retirement Account. Be sure you are clear about any penalties, the effect this may have on income taxes, and repayment terms.
Learn About Low-down payment Mortgages
Federal Housing Administration (FHA) mortgages
The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), plays an important role in assisting low and moderate-income individuals qualify for mortgages. Part of the United States Department of Housing and Urban Development (HUD), FHA aids first-time homebuyers and others who may not be eligible for a typical mortgage on their own by providing mortgage insurance to the lenders. Interest rates for an FHA loan generally feature the current interest rate, while the down payment requirements for an FHA loan will be lower than those of conventional loans. Closing costs can be covered by the mortgage, while your down payment could be as low as three percent of the purchase price.
Guaranteed by the Department of Veterans Affairs, a VA loan assists service people and veterans. This special loan requires no down payment, has minimal closing costs and provides a competitive interest rate. Even though the VA doesn't finance the mortgage loans, it does certify eligibility to qualify for a VA mortgage.
Gifts as Down Payment
For many buyers, especially first-time buyers, saving up the funds for the down payment can be a seemingly insurmountable hurdle to home ownership. This doesn’t have to be the case. As your mortgage broker, Five Points Bank can help you find creative ways to come up with your down payment.
Gift From Family
One way to fund a down payment is by using a gift. For many loan programs, a gift may 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 just 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 your mortgage loan specialist know. They can help you determine which loan programs accept gift funds for down payments and who may give the gift. We can 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.
What is PMI?
Private Mortgage Insurance, also known as PMI, is a supplemental insurance policy you may be required to obtain in order to get a mortgage loan. PMI is provided by private (non-government) companies and is usually required when your loan-to-value ratio (the amount of your mortgage loan divided by the value of your home) is greater than 80 percent.
PMI isn't a bad thing as it allows you to make a lower down payment and still qualify for a mortgage loan