In recent years, no-down payment loans were extremely popular, especially with first-time buyers. However, with the recent lending crisis, lenders have tightened their standards and almost always expect buyers to come to the table with some money upfront. The advantage of having a down payment today is that you will be able to qualify for a loan, since there are very few “zero-down” loan programs still in existence. Down payments also have other benefits:
Benefits of a down payment include:
- Borrowing less money to buy the same-priced home
- Increased choice when shopping among lenders, loan originators and loan products
- Getting a better interest rate
- Paying less for mortgage insurance
- Avoiding mortgage insurance, if your down payment is at least 20% of the purchase price
- Lower Monthly payments
- Instant Equity
Many homebuyers struggle to come up with a down payment, as it can be a significant chunk of money. Consider that if you put 20% down on a $200,000 house, that is $20,000! Even a 10% down payment is $10,000. Here are a dozen ways to get a down payment if you are ready to buy a home:
- Set up an automatic saving plan.
- Sell a car, a boat, collectibles or other assets.
- Get a gift from a relative or friend.
- Liquidate stocks, savings bonds, mutual funds or other investments.
- Allocate your income tax refund to go toward your down payment.
- Take a loan from your 401(k) retirement plan, but pay yourself back with interest.
- Withdraw funds from your 401(k), but remember they are subject to taxes & penalties.
- Collect on a loan you made to someone else.
- Get a bonus or raise from your employer.
- Explore homebuyer programs for public servants, if you qualify.
- Apply for a state or local government homebuyer down payment assistance program.
- Use a private down payment assistance program.
You can also work on small ways to save money, such as cutting out your morning gourmet coffee stop, bringing your lunch and eating out less. Just make sure you contribute the money to your down payment fund; create a separate account if you have to.
Bottom line: The more you can put down on your home the better. But don't forget to keep a little in your cash reserves for home maintenance and other homeownership costs. Especially if you are a first time home buyer, you need to be prepared for that first year, and then adjust your budget accordingly as you see what your monthly expenses look like.
Watch our next post for information about Government backed & private down payment assistance programs.
Labels: down payment, down payment assistance programs
