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Saving for a Mortgage Down Payment


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TERMINOLOGY

Saving for a mortgage down payment can be a huge hurdle in home ownership. Especially if you are a first-time home buyer, you may be short on funds for a down payment plus closing costs. Having a down payment makes you look more credit-worthy to the lender, and some lenders require at least three percent of the loan. There are some options to help you save for a down payment and achieve the dream of owning your own home.

Traditional Savings

There are many ways to cut back in your daily life in order to save more every month. By trimming unnecessary expenses, you may be able to save thousands. When you receive a tax refund, save it all. If you get a bonus at work, save that. Consider selling items you no longer need - especially items you are not going to want to move. It is a good time to start clearing out the clutter. Having a yard sale or selling online can gain you extra funds. The average person has more than $2,000 in unused items that could be sold. Create an automated savings plan, where money is transferred on a regular basis into a savings account that is strictly to be used for a down payment. A part-time job could be another great means of earning extra money.

Gifting

A down payment can be gifted to the borrower. Some lenders have limits on how much can be gifted. A family member may give you money for a down payment or closing costs. People unrelated to you may not provide the gift. Also, it may not be a loan. It must be clearly stated that there is no repayment required. If you are receiving a gift, the lender will ask you to complete a gift letter, which describes your relationship to the giver and how much you are receiving.

Nonprofit Assistance

Many states have a program that offers down payment help to first-time home buyers. If you have a low income or are buying a house in a neighborhood stabilization area, there is more money offered. Some states require you to take a class about home buying. Some employers also have a down payment assistance program. They may do a match, matching dollar for dollar, or they may give an interest-free loan. These are all programs that are worth checking into.

VA and FHA

Consider taking out a mortgage that will not require a large down payment. VA loans require no money down if you are a qualifying veteran. FHA loans require only a three percent down payment. FHA loans offer low down payments and low interest rates, so these can be great mortgages. They do have stricter requirements about the condition of the house than conventional mortgages, though.