Putting Together Your Down Payment

Many borrowers can qualify for several different kinds of mortgages, but they can't afford a large down payment. Do you want to buy a new house, but don't know how you should put together a down payment?

Cut expenses and save. Look for ways you can trim your monthly expenses to put away money for a down payment. You could also decide to enroll in an automatic savings plan to have a percentage of your pay automatically transferred into savings. You could look into some big expenses in your spending history that you can live without, or trim, at least temporarily. Here are a couple of examples: you might decide to move into less expensive housing, or skip a vacation.

Sell things you do not really need and find a part-time job. Maybe you can get a second job to get your down payment money. In addition, you can make an exhaustive inventory of things you may be able to sell. Broken gold jewelry can bring a good price from local jewelry stores. Maybe you own collectibles you can put up for sale at an online auction, or household items for a tag or garage sale. Also, you can think about selling any investments you hold.

Borrow from your retirement funds. Research the specifics for your particular plan. Many people get down payment money by withdrawing from Individual Retirement Accounts or borrowing from their 401(k) programs. Make sure you understand the tax consequences, repayment terms, and any penalties for withdrawing early.

Ask for a generous gift from family. Many homebuyers are sometimes lucky enough to receive down payment help from giving parents and other family members who are eager to help them get into their first home. Your family members may be pleased at the chance to help you reach the milestone of having your own home.

Contact housing finance agencies. These agencies extend special mortgage programs to low and moderate-income homebuyers, buyers interested in remodeling a house in a particular part of the city, and other particular types of buyers as specified by the agency. Working with this type of agency, you may be given an interest rate that is below market, down payment help and other perks. Housing finance agencies may assist you with a lower rate of interest, help with your down payment, and provide other advantages. The principal goal of non-profit housing finance agencies is promoting home ownership in specific places.

Research no-down and low-down mortgages.

• Federal Housing Administration (FHA) loans

  The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), plays an important part in assisting low and moderate-income families get mortgage loans. An office of the U.S. Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) helps individuals get FHA offers mortgage insurance to private lenders, enabling homebuyers who will not qualify for a traditional mortgage loan, to obtain financing. Interest rates for an FHA mortgage are usually the current interest rate, but the down payment for an FHA mortgage will be below those of conventional loans. The down payment may be as low as three percent while the closing costs might be covered by the mortgage loan.

• VA mortgage loans

  Guaranteed by the Department of Veterans Affairs, a VA loan assists service people and veterans. This special loan does not require a down payment, has mimimal closing costs, and offers a competitive rate of interest. While it's true that the mortgages are not actually issued by the VA, the department verfifies applicants by providing eligibility certificates.

• Piggy-back loans

  A piggy-back loan is a second mortgage that closes with the first. Usually the first mortgage is for 80% of the purchase amount and the "piggyback" funds 10%. The borrower covers the remaining 10%, rather than come up with the typical 20% down payment.

• Carry-Back loans

  In the option of a seller "carrying back a second mortgage," the seller loans you part of his or her home equity. You would borrow the majority of the purchase price from a traditional mortgage lender and borrow the remaining amount from the seller. Usually you will pay a somewhat higher interest rate with the loan financed by the seller.

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