www. billboard.com
Oh- I wasn't talking about him- no one can have too much Johnny Cash-I was referring to:
This kind of cash-the spending kind.
There are a few no money down programs available-a very few. Chief among them are VA and USDA. In some states there are down payment assistance programs that provide the funds for down payment on FHA loans. A couple of things we need to keep in mind about those. (other than VA) These programs typically have income and or geographic restrictions- and in some cases higher credit requirements. So they solve the down payment issue for a few people. The vast majority of people do have to figure out how much down payment they will need and where it will come from.
First how much-
The lowest down payment loan available today is the FHA mortgage loan with a required investment of 3.5%. When you stop and think about it, 3.5% isn't much to ask when one is talking about asking the lender to foot the bill for the rest of the loan. (And yes, there is money in it for them) Most people are able to come up with 3.5%. This money can be a gift from a family member, a withdrawal from a 401K or come from savings and checking. My concern for folks who can't find 3.5% is that if there isn't money in the budget for a down payment, how will repairs to expensive items such as furnaces, roofs, etc. be done? I feel more comfortable when I am doing a 100% mortgage if there is some savings that the home owner can fall back on for repair items.
Another option if someone has good credit scores and enough income to be able to set money back for a down payment is the 5% down conventional mortgage. This loan is a bit more attractive than the FHA. While both offer 30 year fixed interest rates, the FHA actually being lower, the conventional mortgage has much lower monthly mortgage insurance and no upfront mortgage insurance premium. Typically even with the higher interest rate the total payment will be lower. The other new thing that is being offered on the 5% down conventional mortgages is that some lenders allow a 5% gift from a family member for down payment. We currently have two lenders that offer this benefit. The credit score does need to be 720 or above if a gift from Mom and Dad is how the down payment will be funded.
So where does this money come from-money doesn't grow on trees-
Wouldn't you love to have one of these in your back yard? I would. Anyway-where can money come from for down payment?
We already talked about gifts from family members and 401K's.
Many folks are able to put aside their tax return check or an annual bonus check to help seed the down payment. I have had some borrowers who have been able to sell boats, trucks, or other items of value for the money. If that is how you obtain the down payment be sure whatever you sell is well documented-checks copied, title copied etc or if it is cash-it will need to be in your bank account a full two months before it can be used as down payment. The same goes for money you may have under the mattress-it has to be in your bank account for two months before it can be used as down payment money.
For those who are really good penny pinchers of course you can put down any amount of money over 5%-however, payment Nirvana is reached when a 20% down payment is possible on a conventional loan as the mortgage insurance is eliminated at that point. The same is not true of FHA-though the mortgage insurance is reduced depending on how large the down payment might be.
Perhaps as time goes on we may see a few more 100% possibilities turn up-but it is never a bad thing to have a little money to put down on a home. As we move to more full employment we are hopeful. that most people will have a bit to put away so that home ownership can become a reality.
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