One of the major deciding factors in buying a home has to do with the amount of money that can be saved for the down payment. Although the ideal down payment would be 20% of the purchase price, you will find a number of programs that allow 3% to 5% down. However, using a higher down payment comes with benefits to include avoiding the cost of private mortgage insurance and usually, lower interest rates.
If you want to buy but are not sure how you will come up with the down payment, we have provided you with some tips on ways to reach your goal so you can become a homeowner. First, start saving. Literally, put all of your change in a jar and let it accumulate. Then, any money you have left over from your paycheck, add to your savings. While it might not seem like much at first, you will be amazed at how much you can save in just one month.
Another excellent option for coming up with the down payment is to pay off your debt. In fact, many financial counselors will suggest you pay off debt before you begin saving. With this, you want to start with the highest interest debts first such as credit cards. To get debt paid off, you have to pay much more than the minimum payment. For instance, a credit card with a $1,000 balance and 22% interest rate paid off with the minimum payment of $20 a month would take you almost 30 years to bring to a zero balance. Therefore, pay double or triple any time you can.
You can also turn to family for a down payment. Here, you have two primary options. The first is a personal loan whereby you would pay the money back but in this case, the lender would need to know so the payment amount can be calculated in your lending process. The other option for family is to have them provide you the money along with a gift letter, which means the money does not have to be accounted for when securing your mortgage loan.
In addition, you have options for different loans if all you can come up with is a 3% or 5% loan. Again, today you will find many excellent loans and many lenders willing to work with you on the right solution. For instance, you might qualify for a loan that offers 80% toward the home’s purchase price and a second or piggyback loan that covers the remaining 20%. This is known as an 80/20 loan, which can be used with or without a down payment. As you can see, if you want to buy a home but lack of or low down payment is holding you back, consider all your options before giving up on your dream.