What You Didn't Know About Down Payments

 
 

What most people know about down payments are that you have to put 20% down, which doesn't sound like much until you calculate what 20% of $250,000 is. Most people don't have $50,000 laying around so before you even get started, you take your self out of the running for purchasing home. 

What most people don't know, is there are government loans, such as FHA, where you only have to put as little as 3.5% down. $8,750 is a lot easier to swallow. Better yet, you have VA and USDA loans where you don't have to put anything down and in Nevada we have the Home is Possible program where you can receive a grant to assist you with your down payment. So before you assume you can't buy a home, do some research and reach out to REALTORS and lenders to find out if you can. Below are 4 tips to help you get started:

1. Know Your Down Payment Options

Most lenders are looking for a 20% or higher down payment on a conventional loan, but as we have already talked about, there are other options where you can get a loan with a smaller down payment. 

Some low-down-payment programs you might qualify for include:

GSE-backed loans: Fannie Mae and Freddie Mac, the government-sponsored enterprises that help drive the mortgage market, are both currently backing 97% loan-to-value loans. That enables lenders to offer 3% down payment mortgages to qualified buyers.

FHA: The Federal Housing Administration offers 3.5% down payment mortgages through participating lenders. FHA loans are also easier to qualify for and have slightly lower rates than conventional mortgages.

VA: Eligible veterans, as well as active duty service members and their families, can qualify for Veterans Administration loans. A VA mortgage requires no down payment or mortgage insurance.

USDA: Homebuyers in rural areas may be able to qualify for home loans offered by the U.S. Department of Agriculture. USDA loans offer low rates and 100% financing.

Home is Possible: A Nevada grant program to assist in getting you into a home. You have to meet a few qualifications, such as a 650 or better credit score, incomes under $95,000, and a home under $400,000. You are able to receive a grant for up to 5% to be used for your down payment. 

2. Ways to Help You Save For A Down Payment

Here are a few savings tips to help you save up money for a down payment. 

  • Automatic transfers from your checking account to your savings can help to make the process mandatory — and maybe a little less painful.
  • The $5 bill savings plan. Every time you receive a $5 as change, you set it aside. One woman claims to have saved $36,000 with this little trick, though it took 12 years.
  • Save raises and bonuses rather than spending them.
  • Set aside tax refunds.
  • Use cash rewards credit cards to get cash back on purchases and put the rebates in savings.
  • Snag a few bucks here and there. Got a checking account a few bucks over a round number? Take the extra and transfer it to savings.
  • Keep the car and save the payment. Paid off your car? Resist the urge to buy new and save the monthly payment.
  • Start fast, and the momentum will build. Seed your down payment fund with a bonus or other windfall. A quick start might motivate you to see the balance build even bigger.
  • Visualize your goal. Slap big, beautiful photos of your dream house on the refrigerator, near your office workspace.
  • Use an app to track progress. Mint, SavedPlus, Dollarbird and other budgeting tools may give you even more incentive to save.

3. Using Resources You Didn't Know You Had

First-time homebuyers can withdraw up to $10,000 from an IRA without penalty to purchase a home. If you’re married, that could mean applying as much as $20,000 to your down payment, because both spouses can draw $10,000 from their respective IRAs. Of course, you’ll have to pay the income tax due on the withdrawal, unless you have Roth IRAs.

4. Buy a CD (no not the kind you're thinking)

Now that you have a plan to save for your down payment, where do you put the cash? Your first thought might be to invest it, but that could be a bit risky. 

Perhaps the best option is buying certificates of deposit (CDs) timed to mature around the time you expect to have the bulk of your down payment saved. CDs offer a slightly higher rate than savings accounts or money markets, but that’s because your money is locked up for the term of the CD: six months, one year — even two, three years or more. The fact that your money is inaccessible unless you pay a penalty may help keep those of us easily tempted to tap savings on track.

These 4 tips can help you get on the right track to understanding how much of a down payment you need and how to get there. Buying a house is the dream of many, but only some know how to get there. 

Contact either of us if you have any questions or want to see if you can purchase a home sooner than you thought!

Shawn & Kyle Cunningham
Cunningham Group at RE/MAX Advantage
shawn@cgvegas.com | 702-823-0855 Shawn
kyle@cgvegas.com | 702-823-0840 Kyle