First Time Homebuyer Information & Education

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Saving for a down payment

Saving for a down payment - You used to have had to put at least 20% down on homes. Today, there are many programs that dont require you to save money for a down payment.

It can be very helpful to save for a down payment. Having a larger down payment can reduce your payments and the amount of interest you pay. Also, you have less risk if there is a reduction in prices.

The amount you are able to put away for a down payment savings account is now as important as making sure that you do it regularly.

You may have to start small. Even if you only save $20 from every paycheck, you are off to a good start. As your income increases, or you are able to cut expenses, you will be able to increase the amount of money you are able to devote to saving.

Getting in the habit of saving a portion of your income on a regular basis will help you for years to come.

Make a plan to save and stick to it. To reach your goal, you'll need discipline and determination. You'll also need a budget. It's a good idea to track all your expenses in detail for a month or two. After tracking your expenses, you should end up with a good idea of where your money is going, and where you might be able to cut back in order to save money for a down payment on a home.

Saving for a down payment may be unnecessary with the many loan programs being offered today. However, a down payment may save you money in the long run because lenders associate higher risks to borrowers that have little equity in their home. The lender usually sets rates higher as the loan to value increases or they require PMI which is costly. So, a having a down payment may mean more money upfront but may save you thousands of dollars in the long run.

There are many different strategies you can follow to save money. A simple one to start with is to shop around for insurance or some other monthly bill. Try and cut down on those monthly expenses then whatever money you would be saving by the changes you make put into a savings account. A similar plan can be used when you get a raise. What ever the difference is increase is in your paycheck, have automatically deposited into a different savings account.

FHA insured loans only require 3% down payment and are very flexible about the source of your 3% down payment. Some FHA lenders will allow grant programs for the 3% down.

A gift of funds from a family member can often be used for the down payment. Both the borrower and the family member must provide evidence that the funds are a gift and no repayment is required. They must also show that the family member had the funds to give and they were not borrowed.

You can use up to $10,000 from an IRA for a down payment penalty free or most employers will allow you to borrow against a 401k plan if you do not have the necessary funds to put down on a mortgage but you may not need any money down if you have a satisfactory credit history or rent history.
Please call to discuss your options.

If you have never purchased a home before you can withdraw your 401k for the down-payment. You will not be penalized.

There are many programs available that help you with your down payments. These programs are called Down Payment Assistant programs. Many cities also have grant money available if you meet the specific guidelines.

Another option for young couples to utilize for a down payment for a new home together is to set-up a savings account and add it to your bridal registry. Make sure you keep a record of who contributes to the savings account, you will can include this as a gift fund for most mortgage programs, you will just need to show that no one who contributed has anything to gain by the purchase of the property, (the people who contribute can't be the seller, the mortgage broker, the realtors, etc.)

If you have not been able to save for a down payment, do not let this discourage you from applying for a loan. A mortgage professional can consult with you to determine whether you are ready to buy a home at this time, and borrowers are often better prepared than they think. If you do not currently qualify, a mortgage professional can help you create a timeline and outline necesary steps to get approved in the future. Saving for a down payment may be one of these steps, but it may not.

Quite often borrowers don't realize that they have plenty of assets that can be collaterized or just sold for their down payment. Check you asset list and items around your home. Remember to document any sale of large priced items to prove to your lender where the funds for down paymenet came from.

Down Payment Loans and Gifts - Down Payment Loans and Gifts

Loans and gifts can help with your down payment but you can not use this strategy for all loan programs. The most popular program for this tactic is the Federal Housing Administration or FHA. FHA allows 100% gift funds for your down payment. The gift can be from any relative or can be collected through new innovative programs, like the Bridal Registry where couples receive money into an account that can be used for the down payment.

Another popular tactic, which can be used in a wider range of programs, is to borrow from your 401K program. If you have a 401K program with your employer, you can withdraw without a penalty for your down payment and pay it back over a specified period. There are some drawbacks, the payment will be used in qualifying and your 401K account will not continue to grow as fast. Even with these drawbacks, it is often a smart move if this is your only option.

Gift programs are available to first-time homebuyers, low- and moderate-income individuals and families who wish to achieve homeownership.

For any gift funds used toward downpayment, you must provide documentation that the funds are indeed a gift and not a loan that must be repaid. Your loan officer can help you with this.

There is even a gift program that allows people to sponsor a CD for you. The benefit with this program is that the person making the deposit will retain their money, and gain interest on the investment. Talk to your mortgage professional about this program.

Any time money is obtained from a loan for a down payment this new loan needs to be calculated into your debt to income ratio. This applies to any loan whether it is borrowing against your own 401k, a personal loan, or a home equity line of credit on another property.

Often a lender will only allow a percentage of the down payment to come in the form of a gift. Depending on the lender it can be as low as 5%.

 

Information listed above is to be used for educational purposes only and is not guaranteed

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