National Real Estate – Your down payment, how much can you afford?

The Down Payment: A Critical Factor

The amount you have available for a down payment can be a critical factor when the seller evaluates your purchase offer. More often than not, a bigger downpayment conveys to the seller a more motivated buyer. The downpayment also affects the types of loans for which you can qualify. Down payments typically range from 0 to 20 percent of the sales price for the property. If you need a downpayment and currently do not the amount available, worry not. We at National Real Estate have listed below some ways to resolve your quandary.

Tips for Accumulating a Down Payment

Save
This is the old-fashioned albeit time-consuming method. 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
This is a quick resource if the provisions of your retirement plan allow it. Typically, you can borrow funds from a 401(k) plan for a down payment or make a withdrawal from an Individual Retirement Account without incurring a penalty. Be sure you check with your financial advisor to understand the tax consequences, repayment terms and/or possible early withdrawal penalties.
Downsize your rental
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
Lenders allow gifts from family members to be used as downpayment for home purchases. 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.

Alternative Sources

No-down or minimum down Mortgages
- Zero-down Loans
  There are a number of zero downpayment loan programs available in today's competitive mortgage lending market. Check with National Mortgage (see link in this website) to find out your no-downpayment loan options. They could be a straight-up 100% loan or a "piggy-back" loan where a first and second mortgage are simlutaneously taken to cover 100% of the purchase price. These loans are usually made available to consumers with excellent credit standing.
- "Carry Back" Mortgage
  This is a case of the seller "carrying back a private second mortgage." Meaning, the seller loans you part of his or her equity. In this scenario, you would finance the majority of the loan with a traditional mortgage lender and finance the remaining amount with the seller. Typically you will pay a slightly higher interest rate on the loan financed by the seller.

Housing Finance Agencies
These 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

Most lenders evaluated carefully the source of your downpayment. 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
Click here to learn more about verifying your down payment, closing costs, income and debt.