Saving for A Down Payment

  • December 15, 2014

You’re ready to buy a home (maybe your first?). But you’re concerned about having enough money saved for down payment. How much do you really need? Let’s take a closer look, starting with what a down payment is and why it’s important.
What is a down payment?
Your down payment is the amount of money you pay upfront or “put down” when you buy a home. It’s calculated as a percentage of your home’s purchase price. The balance of the purchase price is typically covered by a mortgage.
The amount you’re able to put down will affect how much home you can buy, as will your credit history and score, income and amount of assets (things you own) debt you already have.
How much is a typical down payment?
Typically, a down payment is 20% of a home’s purchase price. For many people, especially first-time buyers, that can seem like an insurmountable barrier to home ownership. In fact, the #1 issue that prevents renters from becoming homeowners in America is saving for a down payment. Fortunately, you do have options that can open the door to owning you own home without having 20% of the purchase price in your pocket.
What options do I have to avoid a 20% down payment?
See if you qualify for either of these popular alternatives to putting 20% down:
·   FHA Mortgage: Offered by the Federal Housing Administration (FHA), these mortgages require just a 3.5% down payment. The reason the down payment is so low is because the borrower is required to pay mortgage insurance, which protects the lender if the monthly payments are made on time and the loan goes into default.
Your down payment can come from your own savings, a gift from a family member or from a local or state down payment assistance program. Plus, some of your closing costs can be paid by your mortgage lender, home seller or builder.
To qualify for an FHA mortgage and 3.5% down payment, you’ll generally need a minimum credit score of 580 (although the FHA does allow for some exceptions). If your credit score is between 500 and 579, you’ll likely need to put 10% down. Check with your mortgage lender to see how the FHA guideline will apply to you.
·   VA Mortgage: For qualifying veterans, a loan from the Veteran’s Administration (VA) may be the perfect answer to the down payment dilemma. With a VA loan, there’s no down payment at all. Also, there aren’t any mortgage insurance requirements. So not only can a veteran qualify for a mortgage easier, he or she will save a significant amount on every monthly payment.
Lending guidelines are generally more flexible for VA loans than they are for traditional mortgages. And if the borrower has trouble making the payments, the VA can negotiate with the lender.
You may qualify for a VA loan if you’re currently a member of the military, a veteran, reservist or National Guard member. Spouses can also apply, if married to a military member who died while on active duty or due to a disability caused by military service. Typically, active-duty members can generally qualify after six months of service. If you believe you may qualify for a VA loan, just ask your mortgage lender who can tell you for sure.
Are there any other no-down payment programs?
Yes! If you live in a rural area and meet the income eligibility requirements, you may qualify for a mortgage from the US Department of Agriculture (USDA), under the Rural Development Single Family Housing Loan Guarantee Program.
Finally, here’s one more idea to consider: there are down payment assistance programs across the country that could give you the direction and support you need. Ask your mortgage lender for programs in your area.

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