Blog with MAE Capital

Down Payment for a House

July 8th, 2014 5:53 PM by Gregg Mower

So you are reading this because you are wondering where to find money that you can use for your down payment on a house.  It has become more and more difficult over the last several years to find home loans that require little or no down payment and you have been calling around trying to find some information on down payment assistance and you are finding that there is very limited programs for the average person that would like to buy a home in a major metropolitan area.  What you may not have found out is where you can get the down payment funds from.  FHA loans are the loans that require the smallest down payment to purchase a home, although it is still 3.5% and on a $300,000 that is $10,500 way out of reach for the average American.  So what is a family supposed to do to gather the necessary funds they need to buy a home?  The answer might just be under your nose as you read this. 

Let’s start with the requirements for a down payment and what happens the more money you can put down on a house.  First, you need to know that if you can come up with 20% of the purchase price for the down payment that is your best case scenario as the more you can put down the less risk it is for a lender to lend you money, so you tend to get better interest rates the more you put down.  A Conventional Loan that will be securitized by FNMA (Fannie Mae) or FHLMC (Freddie Mac) will require you to purchase mortgage insurance if you don’t put 20% or more down on a house but the minimum down payment requirement for a Conventional loan is 5%.  We already talked about FHA requiring only 3.5% for a down payment and then there is a Veteran Loan or a VA loan that require no down payment.  Although a VA loan requires no down payment you would have to show that you served in the military and have acquired the necessary benefits to use a VA loan. 

So you are not a Veteran and you are wondering how to accumulate a down payment in today’s weak economy.  There are programs that can be used that the government offers, but they are limited to income constraints and areas you can buy in.  The most prevalent programs used for down payment assistance are USDA (United State Department of Agriculture) and CHDAP (California Housing Downpayment Assistance Program).  The USDA program requires you buy in areas where the population is less than 25,000 as of the last census data,  so you have go to the website to find out what areas qualify.   With USDA you can do 100% financing with a small Mortgage Insurance payment, a good program all around. The CHDAP program is a silent loan for 3% of the sales price that covers the down payment for a FHA loan.  With the USDA loan you do not have to be a first time buyer but you must make under a certain amount of income, and buy a home in a rural area, and you have to live in that home as your primary residence.  CHDAP also has income limitations based on family size in the area you are purchasing, but you also have to be a first time home buyer, you have to live in the house, and your debt-to–income ratio can’t exceed 43%.  You might fit the parameters of these programs, that’s great let’s get you started, but if you don’t and are still wondering what to do keep reading.

Ok you don’t qualify for any down payment assistance programs but you have a great income but can’t manage to save enough for a down payment.  I have some tricks that you may not have known you can do.  First, is an obvious trick ant that is used with an FHA loan and that is the use of a gift.  The FHA guidelines say that you can get your down payment can come from, a family member, an employer, or a government institution (which we talked about earlier).  If the gift comes from a family member we must verify that the family member had the money to gift to you by getting a bank statement showing sufficient funds to gift for your down payment.  Sounds like a mouth full but the devil is I the details.  The detail is that if the money comes from a gift you only have to verify 1 month bank statement showing the donor has the funds to gift you but 3 months of funds have to be verified if the money comes from your own funds. So if one plans properly one could use gift funds right away and not have to wait to season funds in your own bank account for 3 months.  The down payment may also come form your employer.  It might sound out of the question but sometimes you can get an advance, or a bonus, or a grant from your employer for the down payment.  If these avenues fail you could sell an asset for the down payment.  It's true that old car, tools, gold, stocks or bonds, and guns anything you could sell and show a sales receipt you can use for a down payment.  You can also put a loan against a car you own free and clear and use that money.  You might have heard that you can’t borrow the down payment, and that is true, unless you borrow against an asset like a car or another house or land you might own.  If you can handle both the new home loan payment and the payment on the loan you got against the assets you are good to go with a down payment to purchase a home. 

One last tidbit you might not have thought about and that is your retirement plan you currently have.  Yes, you can use that for your down payment and most plans will not charge you a penalty for using your retirement early if you use it for the purchase of your primary home.  You can also borrow against it for the down payment as it is an asset you own.  Although I have talked about a few tricks of the trade in this article, there are still more legal ways to get a down payment on a house there is just not enough time to articulate every type of scenario.  This is where our very talented Loan Originators come in to help.  If you need expert help with putting together a down payment scenario please call us today and we will walk you through your specific needs.   

Posted in:General
Posted by Gregg Mower on July 8th, 2014 5:53 PM

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