Coming Up With Your Down Payment

A common part of any home purchase is your down payment. Naturally, the larger your initial payment on your property, the less you will pay every month for your mortgage. Nevertheless, to simplify the process, there are certain steps you can take to make sure you have the cash on hand. Keep in mind that the typical down payment expected would range from ten to twenty percent.

The simplest way to develop a down payment is to save money. All lenders prefer cash down payments. If you are currently paying rent or a mortgage and are planning to purchase a home, figure out your likely budget for the new house ahead of time. If your new mortgage will be more than your current housing payment, set aside the extra cash into a savings or money market account that gives you ready access to the funds.

If you will be saving long-term, investigate accounts with greater return, whether they are CDs or riskier applications with potentially higher returns, such as the stock market, bonds or mutual funds. Keep in mind that such assets will need to be liquidated into cash to be part of your down payment.

Another option is to increase the amount of money you place into your retirement accounts. Almost every form of retirement account allows for the depositor to borrow the money for use as a down payment on a first home or primary residence. Check with your financial advisor or experts in your company (if work supplies your retirement plan) for all the details before taking advantage of this option. There may be tax penalties involved, but these may be offset by deductions created through the purchase of your property.

You can also sell other assets or receive a gift from relatives. Your application process will go much easier if you generate such cash well before your home-buying process begins. Again, estimating how much you want to spend on a property ahead of time is essential. Then you can use this method to generate the necessary cash, have the money in the bank and avoid unnecessary paperwork or financial pressures during your home-buying process.

Check with your employer to see if they have any programs for workers buying homes locally. Large businesses tend to help employees to live in the firm’s area to ensure company loyalty. Programs can range from loans, to housing deals to bonuses, especially for first-time buyers. When you are moving to join a company is the best time to leverage this type of assistance.

Finally, you have the option of getting a secured loan. Some type of property is necessary to serve as collateral for such borrowing. This will affect your credit rating, however, and could lead to a higher mortgage interest rate, so the previous methods of securing a down payment are far superior.

While it is possible to negotiate a loan without a down payment, and many lenders now make no-down payment or even five percent down payment loans available, any loan funding a purchase with less than a twenty percent down payment usually requires Private Mortgage Insurance (PMI), an additional cost to ensure payment to the creditors if you default on the loan. Once you pass the twenty percent mark in your equity, however, most lenders allow an end to PMI payments at your request, with 22 percent in equity being the maximum required by law.

A “piggyback” loan can also be negotiated, where the lender loans you the money for your down payment too. Naturally, your monthly costs will be much higher if you use this option, but there will be additional tax deductions available that don’t come from PMI payments. These are options best discussed with a qualified financial advisor.

Keep in mind that the best method of funding a down payment is cash in hand. Yet, if you don’t have twenty percent, don’t despair. Set your budget, find a trustworthy loan advisor and locate the property you’re looking for. There’s always a way to come up with your down payment.