Putting Together Your Down Payment

Lots of borrowers can easily qualify for various loan programs, but they can't afford a large down payment. Want to buy a new home, but aren't sure how to put together a down payment?

Cut expenses and save. Scrutinize the budget to discover ways you can cut expenses to save for your down payment. You may also decide to enroll in an automatic savings plan to have a percentage of your pay automatically deposited into savings. You would be wise to look into some big expenses in your budget that you can give up, or reduce, at least temporarily. For example, you might move into less expensive housing, or stay close to home for your annual vacation.

Work more and sell items you do not need. Look for a second job. This can be rough, but the temporary difficulty can provide your down payment money. You can also seriously consider the possessions you actually need and the items you may be able to sell. Multiple small items could add up to a nice sum at a garage or tag sale. You might also research what your investments could bring if sold.

Borrow funds from a retirement plan. Check the parameters of your particular plan. Some people get down payment money from withdrawing funds from IRAs or pulling funds out of their 401(k) programs. Be sure you know about any penalties, the way this will affect on your income taxes, and repayment obligation.

Ask for assistance from generous members of your family. First-time buyers are sometimes lucky enough to receive down payment help from thoughtful parents and other family members who may be anxious to help get them in their own home. Your family members may be inclined to help you reach the milestone of owning your first home.

Contact housing finance agencies. These types of agencies provide special loan programs to moderate and low income buyers, buyers interested in sprucing up a residence in a specific area, and additional certain types of buyers as defined by each agency. Working with a housing finance agency, you can receive a below market interest rate, down payment assistance and other incentives. Housing finance agencies may help eligible homebuyers with a reduced rate of interest, get you your down payment, and offer other assistance. These non-profit programs exist to promote the value of homes in specific places.

Find out about low-down and no-down mortgage loan programs.

• Federal Housing Administration (FHA) loans

  The Federal Housing Administration (FHA), which functions as part of the U.S. Department of Housing and Urban Development (HUD), plays an important role in helping low and moderate-income families qualify for mortgage loans. An office of the United States Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) assists individuals in qualifying for home financing. FHA provides mortgage insurance to private lenders, ensuring the buyers are eligible for a loan. Interest rates for an FHA loan are typically the current interest rate, while the down payment for an FHA loan are below those of conventional loans. Closing costs can be included in the mortgage, while your down payment could be as low as 3 percent of the total.

• VA mortgage loans

  Guaranteed by the Department of Veterans Affairs, a VA loan assists service people and veterans. This special loan requires no down payment, has reduced closing costs, and offers a competitive interest rate. While the VA doesn't finance the mortgages, it does issue a certificate of eligibility to qualify for a VA loan.

• Piggy-back loans

  A piggy-back loan is a second mortgage that you close at the same time as the first. Generally the piggyback loan is for 10 percent of the home's amount, and the first mortgage finances 80 percent. In contrast to the usual 20 percent down payment, the homebuyer just has to pull together the remaining 10 percent.

• Carry-Back loans

  With a carry-back mortgage, the seller loans you part of his or her equity. You would borrow the majority of the purchase price from a traditional lending institution and finance the remaining amount with the seller. Generally, this kind of second mortgage will have higher interest.

No matter how you gather your down payment funds, the satisfaction of living in your own home will be just as sweet!