Most mortgage
lenders require that you put a down payment on
your home purchase. This is typically 10, 15, or
20 percent of the home's total value. The more
money you can afford to put down, the lower your
mortgage payment or the more expensive the house
that you can afford. It's a good idea to try and
make as large a down payment as possible.
Mortgage lenders may be willing to overlook a
less than perfect credit history or be more
lenient on income and other financial
considerations if you have 25 to 30 percent for
your down payment.
Example:
If you make $40,000 a year, your maximum monthly
payment (28 percent of gross income) will be
$933. If your total monthly dept is no more than
$1,200 (36 percent of gross income), the bigger
the down payment, the more expensive a house you
can buy. If for example, your monthly mortgage
payment of $933 has an interest rate of 7.5
percent, you payments will cover a total
principle of $133,435.45. That figure increases
to $148,262 if you can put 10 percent down and
$166,794 if you put 20 percent down.
If you're having
a hard time scrounging up the necessary down
payment, here are some suggestions:
-
Examine
your expenses and cost-cut where you think
is appropriate. This may mean forgoing that
new car, or that upcoming vacation, or it
can be something as simple as eating out
less or spending less money on clothing.
You'll be surprised at how much you might
save in this way.
-
Congress
allows you to withdraw up to $10,000 from
your IRA account, and avoid a 10-percent tax
for early withdrawal, if you use the money
towards purchasing your first home. In order
to qualify, you must be a "first-time buyer"
who hasn't owned any interest in a home for
at least two years prior to the acquisition
of your new primary residence, and the funds
must be used within 120 days of the
withdrawal. Many 401(k) retirement plans
also give you the option of borrowing money
from your account, which can be paid back
through payroll deductions.
-
If you have
any well-off family members or friends,
consider borrowing the money from them and
paying it back monthly. Or if they also
happen to be wealthy, and both of you are
willing to consider it a gift, then you,
your spouse, and each of your kids can
receive up to $10,000 per calendar year
towards the purchase of your new home and
not have it included in your overall
debt
load.
Special and
first-time buyer programs
The lack of a
down payment is a major hurdle for many people,
especially first time buyers, when it comes time
to buy a home. Fortunately, there are many state
programs and government agencies like Fannie Mae
and Freddie Mac that have financial aid programs
that may be able to assist low or moderate
income buyers in the purchase of their first
home with little or no down payment. It may also
be worthwhile to inquire with your bank or
mortgage lender about any low down payment loans
or first time buyer programs that they may
offer.
Other specific
programs that may be of assistance in securing a
mortgage with little or no down payment include
the Federal Housing Administration (FHA),
Veterans Administration, and the Rural Housing
Service, each of which have their own set of
criteria for qualification.
