Loan Tips--Down Payment

The Down Payment

Ultimately, most individual need to accumulate a modest downpayment to qualify for a residential mortgage. With the popular loan programs, down payments typically range from 3 to 20 percent of the sales price for the property. The amount you have available for a down payment will affect what types of loans for which you can qualify. Tips for Accumulating a Down Payment:

Save
This may seem obvious, but saving can be much harder than some of the other tips listed below. Depending on your budget you may be able to simple begin saving for your down-payment. If not start looking at your cash outflow to determine how you can: 

• Reduce your monthly expenditures to save toward a down-payment.
  
• Enroll for an automatic savings plan at your bank to have a portion of your payroll automatically transferred into savings. 
  

It may take a couple of years but it will be worth it in the long run.

Borrow the down payment from your retirement plan

• Check the provisions of your retirement plan.  You can borrow funds from a 401(k) plan for a down payment or make a withdrawal from an Individual Retirement Account. Be sure you understand the tax consequences, repayment terms and/or possible early withdrawal penalties.
• Move
  You may be able to save additional funds if you can move into less expensive housing.
• Reduce other higher interest rate debt
  Paying off credit cards will initially reduce your savings, but the money you will save from higher interest rates will pay-off in the long run.
• Make a deal with the seller
  In some circumstances, it is appropriate to ask the seller to carry a second-mortgage to cover your down payment. Typically, you will pay a slightly higher rate for this second mortgage.
• Sell some investments
• Get a second job and save your earnings
• Skip a year's vacation

Gift from Family 
Parents and other family members are often anxious to help children buy their first home and may have the means to give you a gift of money for a portion or all of your down payment. Check with your Loan Officer to determine what loan programs allow gifts and how they must be given and documented. 

Alternative Sources
No-down and low-down Mortgages

• FHA Loans
  The Federal Housing Authority (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), plays a significant role in helping low- to moderate-income families qualify for mortgages. FHA assists first-time buyers and others who would not qualify for a conventional loan, by providing mortgage insurance to private lenders. Interest rates for an FHA loan are usually the going market rate, while the down payment requirements for an FHA loan are lower than conventional loans. The required down payment can be as low as 3 percent and the closing costs can be included in the mortgage amount.
   
• VA Loans
  VA Loans are guaranteed by the U.S. Department of Veterans Affairs. Service persons and veterans can qualify for a VA Loan, which usually offers a competitive fixed interest rate, no down payment 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.
   
• Piggy-back Loans(Second)
  A second mortgage that closes with the first. Often the first mortgage is for 80% of the purchase price and the "piggyback" is for 10%. The home buyer covers the remaining 10% with their down payment. (Some lenders will write a second mortgage of 15% or even 20% of the purchase price. 

Housing Finance Agencies

• These agencies offer special loan programs to low- and moderate-income buyers, buyers interested in rehabilitating a home in a targeted area, and other groups as defined by the agency. Working through a housing finance agency, you can receive a below market interest rate, down payment assistance and other incentives.
• The primary mission of Housing Finance Agencies is to boost home ownership in targeted areas, among first-time buyers and those with little money for down payments. Most of these non-profit agencies were funded with state government seed money and now operate independently.

• Housing Finance Agencies
  These agencies offer special loan programs to low- and moderate-income buyers, buyers interested in rehabilitating a home in a targeted area, and other groups as defined by the agency. Working through a housing finance agency, you can receive a below market interest rate, down payment assistance and other incentives.
• The primary mission of Housing Finance Agencies is to boost home ownership in targeted areas, among first-time buyers and those with little money for down payments. Most of these non-profit agencies were funded with state government seed money and now operate independently.

Documenting Your Down Payment
Documenting that the down payment comes from your savings and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.

Take extra care to document the sources for any monies to be used for the down payment or closing costs.

Acceptable Down Payment & Closing Costs Sources

·         Cash in a bank account

·         Mutual funds / stocks / IRA / 401K

·         Proceeds from the sale of another property

·         Gift from an immediate relative

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Raquel “Rocky” Moore
NMLS Mortgage License #138789
email: Raquel

Mortgage 1 Inc.
45816 Schoenherr Road
Shelby Township, MI 48315
Phone 586.612.5001
Fax 586.677.3898

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