How to Find a Down Payment to Buy a Home
By Editor | November 10, 2007
By Elizabeth Weintraub
12 Ways to Find a Down Payment
Home ownership in America has increased from 25% in the early 1900s to 67% at the end of that century. During all those years, many home buyers struggled to come up with a down payment. In some cases, the banks required as much as 50% down before they would lend on a mortgage.
Today, the desired down payment is typically 20%; however, few people have that much cash available to them. FHA loans, for example, require only 3% down. But the fact remains that the more a buyer puts down, the lower the mortgage. Low mortgage balances carry low mortgage payments.
Here are 12 ways to find that down payment.
1) Save Your Tax Refund
If it’s hard for you to save, you can change your withholding exemptions from 1 to zero.
This will force your employer to pay more to the I.R.S. and reduce your paycheck by that amount. For some free-spending and undisciplined individuals, this method assures a fat income tax refund. Even a regular tax income refund, however, might be enough to help you buy a home.
2) Borrow From Parents
It’s not unusual for parents to help their children buy a home. Favorable tax laws will let each parent gift a certain amount without tax consequences (check with your CPA).
If your parents won’t give you the money, perhaps you could ask for an unsecured loan and pay it back at a better rate than your parents could get at the bank or in a money-market account? The rate you pay would likely be less than the prevailing rate from your own lending institution, which makes it win-win for everybody.
3) Sock Away X Amount Periodically
The secret to making a savings account grow is to make identical deposits at the same time every month. For example, if you are paid every two weeks and save $200 from every paycheck, at the end of 12 months, you will have saved more than $5,200, excluding interest.
4) Sell Stuff on eBay or Hold a Garage Sale
Everybody has too much stuff. I’ve never met a person who didn’t. Some people spend thousands every year on storage units where this stuff is stashed. Look in your attic, your basement, under your bed and in your closets for stuff you no longer use. If you haven’t used it in a year, sell it at a garage sale, put it on Craig’s List or set up an eBay account and get rid of it.
I thought I was going to have pay somebody to come haul away my 10-year-old treadmill that was collecting dust in my family room. Put that baby on Craig’s List and sold it (for a lot of money!) in less than week. You can, too.
5) Ask Seller to Give it to You
Hey, you never know. If you pay the seller’s asking price, you’d be astonished at what some sellers will do for you. Some of them will even give you the down payment as a credit or pay your closing costs or both. Check with your lender before asking for the credit because lenders have strict requirements as to how much you can receive.
6) Settle Lawsuits Fast
From personal injury suits to civil litigation, typically delays just make the lawyers more money, apart from the fact that the time-value of money decreases as the clock ticks. We live in a litigious society where even a simple auto accident involving slight bumper damage ends up being filed in court. Settle the case quickly and use that reward to help you buy a house.
7) Check Out Government Programs
If you’ve served your country in the armed forces, you may qualify for a loan backed by the Veterans Administration, known as a VA loan. The government also runs a slew of down payment assistance programs for first-time home buyers. Also, check with your county to see if it offers special programs to induce home ownership in certain neighborhoods.
Take a Second Job
Some renters will sacrifice evenings to work part-time at a second job. If it’s a short-term situation, it might not be that hard to do. It could also be seasonal work such as from Thanksgiving to Christmas or specialty work around tax time in the spring.
9) Ask for a Raise
Sit down one evening and write up a list of every thing you have done over the past year that made your company money or somehow increased its bottom line. List every accomplishment. Then take that list to your boss and ask for a raise. Ask for more than you think you will receive. You never know, you might get it.
10) Get a Better Paying Job
As long as your field of employment remains the same, taking a different job should not affect your mortgage application. Maybe it’s time to look for employment elsewhere that will pay more. Check with your local employment office, network with peers and send resumes to companies where you want to work, regardless of whether it advertises a position.
11) Tap Your Retirement Funds
Certain retirement accounts will let you borrow from them to buy a home. Check with your CPA for current regulations. Some types of requirement accounts will let you take out the principal balance without a penalty.
12) Consider 100% Financing
If you have excellent credit, you may qualify for a 100% loan. This could be a single mortgage guaranteed by mortgage insurance, or you could finance a combination or piggyback loans, comprising 100% of the purchase price. Talk to your mortgage broker to see if you qualify.
Tags: tips to finding a down payment to buy a home, creative home financing, hwo to save monbey buying a home, first time home buyer tips, tips for first time home buyers, buying your first home, how to buy a home
Topics: First Time Home Buyers | No Comments »
Home buying: Lies planners will tell you
By Editor | November 5, 2007
When deciding how much mortgage to take on, the math is pretty simple.
By The Mole, Money Magazine’s undercover financial planner
Question: I’m nervous about drawing down my savings to buy a small condo. Should I use my savings or get a mortgage after making a 20 percent down payment?
Answer: Whenever possible, I almost always like to recommend making home purchases out of savings rather than by taking on debt.
The key reason: The interest rate you can get on your savings is usually lower than the rate you pay for a mortgage (that’s how banks make money, after all).
These days, someone taking out a mortgage might pay 6.5 percent. But he might get only 4.5 percent for his money market account. That’s a 2-point difference, and it means that for every $10,000 borrowed, it’s costing $200 per year.
A lot of financial planners will tell you that the tax deduction on mortgage interest changes that equation. But it doesn’t, because the interest earned on savings is also taxable.
Financial planners also sometimes try to argue in favor of debt, the argument being that the less money you put down, the more investment gains will be magnified.
If some financial advisor gives you this line, say "no thanks" in no uncertain terms. These other investments will bring other risk, a ton more in fact. The only thing we know for sure is that the advisor and the mortgage broker will make more money. I’ve explored this tactic in my column, "Why your planner wants you in debt."
Just how much of your savings do I think is fair game when buying a home? All of it, even your emergency fund - the three to six months in living expenses that we planners always recommend.
That’s because, in reality, you don’t need this amount of emergency cash sitting around - just access to it.
In buying the condo, you could open a home equity line of credit (HELOC). For example, you could buy a $100,000 condo and get a tax-deductible line of credit for, let’s say, $50,000. It usually costs nothing to open and it is there for just such an emergency. It’s likely to be at a variable rate but the odds are you won’t need it and, in the meantime, you are saving a ton of money by not making that mortgage payment.
My advice is to be your own banker when possible and minimize debt. Always have access to emergency cash - and a line of credit tied to your home is a fair way to do that. Finally, make sure that the savings you do have is working hard for you: These days, you should be getting 4.5% - 5.5% on your money market accounts. Top of page
Ask Money Magazine’s undercover financial planner a question. Send e-mails to: themole@moneymail.com.
Tags: how to buy a home, mortgage rates and the first time homebuyer, tips for homebuyers, insider tips on buying a home, advice for buying a home
Topics: Buying a Home | No Comments »
Home buying: Lies planners will tell you
By Editor | November 5, 2007
When deciding how much mortgage to take on, the math is pretty simple.
By The Mole, Money Magazine’s undercover financial planner
Question: I’m nervous about drawing down my savings to buy a small condo. Should I use my savings or get a mortgage after making a 20 percent down payment?
Answer: Whenever possible, I almost always like to recommend making home purchases out of savings rather than by taking on debt.
The key reason: The interest rate you can get on your savings is usually lower than the rate you pay for a mortgage (that’s how banks make money, after all).
These days, someone taking out a mortgage might pay 6.5 percent. But he might get only 4.5 percent for his money market account. That’s a 2-point difference, and it means that for every $10,000 borrowed, it’s costing $200 per year.
A lot of financial planners will tell you that the tax deduction on mortgage interest changes that equation. But it doesn’t, because the interest earned on savings is also taxable.
Financial planners also sometimes try to argue in favor of debt, the argument being that the less money you put down, the more investment gains will be magnified.
If some financial advisor gives you this line, say "no thanks" in no uncertain terms. These other investments will bring other risk, a ton more in fact. The only thing we know for sure is that the advisor and the mortgage broker will make more money. I’ve explored this tactic in my column, "Why your planner wants you in debt."
Just how much of your savings do I think is fair game when buying a home? All of it, even your emergency fund - the three to six months in living expenses that we planners always recommend.
That’s because, in reality, you don’t need this amount of emergency cash sitting around - just access to it.
In buying the condo, you could open a home equity line of credit (HELOC). For example, you could buy a $100,000 condo and get a tax-deductible line of credit for, let’s say, $50,000. It usually costs nothing to open and it is there for just such an emergency. It’s likely to be at a variable rate but the odds are you won’t need it and, in the meantime, you are saving a ton of money by not making that mortgage payment.
My advice is to be your own banker when possible and minimize debt. Always have access to emergency cash - and a line of credit tied to your home is a fair way to do that. Finally, make sure that the savings you do have is working hard for you: These days, you should be getting 4.5% - 5.5% on your money market accounts. Top of page
Ask Money Magazine’s undercover financial planner a question. Send e-mails to: themole@moneymail.com.
Tags: how tobuy a home, mortgage rates and the first time homebuyer, tips for homebuyers, insider tips on buying a home, advice fopr buying a home
Topics: Buying a Home | No Comments »