Mortgage Down Payment FAQ
How much will you need for a down payment?
A down payment is an amount that you will be putting down towards the purchase of a home. The amount of your down payment will depend on a variety of factors, such as the amount of money you have saved for your home purchase, your current financial situation, and your feelings toward other investment options. Nowadays, there are lots of options and you need to consult your local mortgage planner to find out what options would be best for you.
Can you get a low down payment mortgage?
Yes you can and make sure to contact your local mortgage planner to find out what options work best for you.
You may be able to get a Federal Housing Administration (FHA) mortgage with a low down payment, making this mortgage very attractive to first-time home buyers.
Department of Veterans Affairs (VA) mortgages are another low down payment option. VA mortgages are available to qualified veterans and their surviving spouses. VA mortgage terms are also generally very attractive, and in many cases, little or no down payment is required.
You may be able to obtain a conventional mortgage with or with out the help of private mortgage insurance (PMI).
What about larger down payments?
If you have a large downpayment to put down, you may still want to take the time to weigh your down payment options. With a larger down payment, you will reduce the amount of your mortgage and thus the amount of interest you will pay. Keep in mind, however, that there may be situations where you might not want to make a large down payment. For example, you may want to keep the money in your emergency cash reserve. Or, you may want to put the money toward other investment opportunities.
Tips for Accumulating a Down Payment
Save – Look for ways to reduce your monthly expenditures to save toward a down-payment. You could enroll for an automatic savings plan at your bank to have a portion of your payroll automatically transferred into savings. Most people save a couple of years for their down payment.
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.