Mortgage Down Payment | New Homes Market Center
The down payment is the sum of money that you pay upfront to reduce the amount of money you borrow from a mortgage lender. Your lender should advise you of what down payment options are available to you. There are many loan programs available today that do not require any money down. However, the less you put down, the higher your mortgage payment will be. A good rule of thumb is to consider how much money you have in your savings. If you want to use some of that money for a down payment, you should try to keep enough money in that account to cover three to six months worth of your projected monthly housing expense after subtracting the down payment. Keep in mind that it is possible to qualify to purchase a new home with very little money in your savings.
Rather than saving all of the money yourself or using your entire savings, consider other ways of accumulating your down payment. These methods are acceptable to most lenders.
Eight ways to accumulate a down payment or purchase a new home with nothing down:
1. Have a relative give you the money as a gift. Lenders require documentation to prove that the money is actually a gift and not a loan. The government permits any taxpayer to give up to $12,000.00 per year to another person without having to pay a gift tax. Technically, your mother could give you $12,000.00 and give another $12,000.00 to your spouse. Your father could do the same. This would give you a total of $48,000.00 towards a down payment and closing costs. (NOTE: Unless you are putting down at least 20 percent or are obtaining a government-insured loan, the lender may require that five percent of the sales price be from your own money. Some loan programs might not allow gifts contributions at all, please check with your lender before making large deposits into your bank.)
2. Borrow against your 401K or insurance policy. In this situation, lenders count the loan payment as debt.
3. Cash out your 401K. Keep in mind that the government imposes withdrawal penalties and payment of taxes.
4. Sell or borrow against an asset. Selling an asset such as a car can help increase the amount of money you have available. Borrowing against an asset is also acceptable as long as you qualify with the additional debt.
5. Obtain a low-point or zero-down loan. This will reduce the amount of your closing costs substantially. In some instances, the lender, builder or seller can also pay all or part of your non-recurring closing costs.
6. Ask the seller or builder to pay all or part of your non-recurring closing costs. Your Realtor® can assist you with this when you make an offer on a home.
7. Ask the seller to carry back financing. If the seller does not need all of the equity in their property, they may be willing to carry some of the financing, which will reduce the amount of your down payment. It is not likely that a builder will provide this.
8. Consider different loan programs. Your lender can help you determine the best loan program to suit your needs. There are wide varieties of programs that offer lower down payments and assistance with closing costs. You may want to research your city or county’s down payment assistance programs, and/or non-profit organizations’ down payment assistance programs. Non-profit organizations offer these programs to most individuals. Many of the new homebuilders offer assistance programs for buyers to purchase a new home. Please contact your New Homes Market Center Realtor® to find out about some of the programs that new homebuilders are currently offering.