Tuesday 16th of September 2014

How to Figure out Your Down Payment

In the days when the home mortgage business was not in crisis, zero-down home loans were all the rage. Almost anyone with good credit could get a mortgage, regardless of how much cash they could put down up front. Sadly, these days are gone. Now lenders expect borrowers to give them a little more security in the form of substantial down payments. You might not have to come up with the traditional 20%, but you might have to come very close. In this post, we’ll give you tips on how to figure out your down payment.

What a Down Payment Does

The biggest benefit of a down payment is that it enhances your ability to qualify for a loan. Home loans with little or no down payments required are dying out fast, so a down payment is as important to qualification as your credit. But the advantages of down payments extend beyond qualification. For one, the more money you put down up front, the lower your monthly mortgage payments will be. Moreover, a down payment becomes home equity once you purchase the home, and that means you can borrow against this with home equity loans or credit lines. Finally, a down payment of at least 20% will also save you the expense of private mortgage insurance.

Scrounge up a Down Payment

If you don’t have the cash to make the down payment you want to, consider the following strategies:

  • Set up an automated savings plan with your bank. You can arrange it so a certain amount of money is automatically transferred from your checking to your savings account on a regular basis. Try to save at least 10% of your paycheck.
  • Have your parents, grandparents, friends, or other relatives give you a gift
  • Sell some valuable assets, such as a boat, a car, a motorcycle, or collectibles
  • Sell investments, like mutual funds, stocks, or savings bonds
  • Spend your income tax refund
  • Get a loan from your 401(k) retirement account, but repay the loan with interest
  • Take money from your 401(k) plan, remembering that the withdrawal is subject to taxes and other penalties
  • Collect on a loan you extended to someone
  • Work on getting a bonus from your employer
  • Look into home-buying programs for civil servants if you meet the criteria
  • Go through a private down-payment assistance service
  • Apply for a local or state government down-payment assistance program