The Down Payment
The amount you have available for a down
payment will affect what types of loans for which you can qualify. Down
payments typically range from 3 to 20 percent of the sales price for the
Accumulating a Down Payment
Look for ways to reduce your monthly expenditures to save toward a
down-payment. You could enroll for an automatic savings plan at your bank
to have a portion of your payroll automatically transferred into savings.
Most people save a couple of years for their down payment.
Borrow the down
payment from your retirement plan
Check the provisions of your retirement plan. You can borrow funds from a
401(k) plan for a down payment or make a withdrawal from an Individual
Retirement Account. Be sure you understand the tax consequences, repayment
terms and/or possible early withdrawal penalties.
You may be able to save additional funds if you can move into less
Reduce other higher
interest rate debt
Paying off credit cards will initially reduce your savings, but the money
you will save from higher interest rates will pay-off in the long run.
Make a deal with the
In some circumstances, it is appropriate to ask the seller to carry a
second-mortgage to cover your down payment. Typically, you will pay
a slightly higher rate for this second mortgage.
Sell some investments
Get a second job and
save your earnings
Skip a year's vacation
Gift from Family
Parents and other family members are often anxious to help children buy
their first home and may have the means to give you a gift of money for a
portion or all of your down payment.
These agencies offer
special loan programs to low- and moderate-income buyers, buyers
interested in rehabilitating a home in a targeted area, and other groups
as defined by the agency. Working through a housing finance agency, you
can receive a below market interest rate, down payment assistance and other
The primary mission of
Housing Finance Agencies is to boost home ownership in targeted areas,
among first-time buyers and those with little money for down payments.
Most of these non-profit agencies were funded with state government seed
money and now operate independently.
Click here for a list
of Housing Finance Agencies.
Documenting Your Down Payment
Documenting that the down payment comes from your savings and that you
will have savings and/or assets over and above the down payment gives the
lender confidence in your strength as a borrower and your ability to repay
Take extra care to document the sources for any monies to be used for the
down payment or closing costs.
Payment & Closing Costs Sources
Cash in a bank
Mutual funds /
stocks / IRA / 401K
Proceeds from the
sale of another property
Gift from an
Click here to learn more about verifying your down
payment, closing costs, income and debt.