The Down Payment
Many news organizations have erroneously reported that to get a mortgage you need 20% down and you have to have perfect credit. That simply isn't true. Our team of highly trained mortgage professionals will walk you through the application process and help you decide which program works best for you. The amount you have available for a down payment will affect what types of loans for which you can qualify. Down payments typically range from 0 to 20 percent of the sales price for the property. Visit our Loan Program Page and explore the many options we offer.
Tips for Accumulating a Down Payment
SaveLook 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 planCheck 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.
MoveYou may be able to save additional funds if you can move into less expensive housing.
Reduce other higher interest rate debtPaying 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.
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.
No-down and low-down Mortgages
USDA or Rural Home Development Loans
The United States Department of Agriculture provides mortgage to encourage home ownership in smaller communities. These loans are income and location limited but have flexible underwriting guidelines. There is no down payment requirement.
FHA LoansThe 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 3.5 percent and the closing costs can be included in the mortgage amount.
VA LoansVA 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 LoansA second mortgage that closes with the first. Often the first mortgage is for 80% of the purchase price and the "piggyback" is for 15%. The home buyer covers the remaining 5% with their down payment. (Some lenders will write a second mortgage of 15% of the purchase price.)
Down Payment Assistance Programs
Many cities and states offer down payment grants or zero interest loans. Although these are not the best options for most people, they do offer resources for down payments the could help you buy a home.
Housing Finance AgenciesThese 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.
Click here for a list of Housing Finance Agencies.
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
Acceptable Down Payment & Closing Costs Sources
Click here to learn more about verifying your down payment, closing costs, income and debt.