Building Your Down Payment

Many buyers qualify for various loan programs, but they don't have a lot of cash to pay the standard down payment. Do you want to buy a new home, but aren't sure how you should get together a down payment?

Slash the budget and build up savings. Turn your budget inside out to discover ways you can cut expenses to save for your down payment. Also, you can look into bank programs in which some of your paycheck is automatically transferred into a savings account every pay period. You might look into some big expenses in your spending history that you can give up, or trim, at least temporarily. For example, you might decide to move into less expensive housing, or skip a family vacation.

Work more and sell things you don't need. Maybe you can find an additional job and build up your earnings. Additionally, you can make a comprehensive list of things you may be able to sell. Unused gold jewelry can bring a good price from local jewelry stores. Maybe you have desirable items you can sell on an auction website, or quality household goods for a tag or garage sale. Also, you can consider selling any investments you hold.

Borrow from your retirement funds. Check the provisions of your particular program. It is possible to borrow funds from a 401(k) plan for a down payment or perform a withdrawal from an Individual Retirement Account. Make sure to find out about the tax consequences, repayment terms, and early withdrawal penalties.

Ask for a gift from family. First-time homebuyers are often fortunate enough to receive down payment help from thoughtful family members who are willing to help get them in their own home. Your family members may be willing to help you reach the goal of buying your first home.

Learn about housing finance agencies. Special mortgage loans are extended to homebuyers in specific situations, like low income homebuyers or buyers looking to improve homes in a specific area, among others. With the help of this kind of agency, you can receive a below market interest rate, down payment help and other benefits. Housing finance agencies may assist eligible homebuyers with a reduced interest rate, get you your down payment, and offer other benefits. These non-profit agencies exist to boost home ownership in specific neighborhoods.

Find out about low-down and no-down mortgages.

• Federal Housing Administration (FHA) mortgage loans

  The Federal Housing Administration (FHA), which functions as part of the U.S. Department of Housing and Urban Development (HUD), plays an important part in aiding low and moderate-income buyers qualify for mortgages. Part of the U.S. Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) helps individuals get FHA assists first-time homebuyers and others who may not be able to qualify for a typical mortgage on their own, by providing mortgage insurance to the private lenders. Interest rates with an FHA loan are generally the market interest rate, but the down payment requirements with an FHA loan will be below those of conventional loans. The required down payment may be as low as three percent and the closing costs can be covered by the mortgage loan.

• VA loans

  With a guarantee from the Department of Veterans Affairs, a VA loan is offered to veterans and service people. This particular loan does not require a down payment, has minimal closing costs, and provides the benefit of a competitive rate of interest. Although the mortgage loans don't originate from the VA, the office certifies borrowers by providing eligibility certificates.

• Piggy-back loans

  You may fund a down payment with a second mortgage that closes with the first. Generally the first mortgage covers 80% of the cost of the home and the "piggyback" is for 10%. The homebuyer covers the remaining 10%, instead of having to put together the usual 20% down payment.

• Carry-Back loans

  In the case of a seller "carrying back a second mortgage," the seller loans you part of his or her equity. The buyer finances most of the purchase price through a traditional mortgage program and borrows the remaining funds from the seller. Typically, this kind of second mortgage has higher interest.