The Down Payment

With the variety of loans, FHA financing, down payment assistance programs, and the availability of private mortgage insurance, saving a large sum of money for the down payment may no longer be an obstacle for most homebuyers.  Though lenders used to require a 20 per cent down payment, today you can buy a home with as little as 3.5 percent or no down payment at all. 

The amount of your down payment affects the type of loan you can obtain, your interest rate, the amount of your monthly payments, and the cash you’ll have left over to pay for closing costs and other expenses like moving and furnishings.  With so many variables dependant on the down payment, it is important to carefully calculate the amount so you receive maximum benefits.

Homebuyers tap into many sources for their down payments.  One of the most common sources is your bank account.  Most bank accounts are easy to withdraw from and earn little or no interest so the money is easily replaced with little loss of interest earnings.  Consider the other expenses you’ll encounter when you move so that you keep enough in your accounts to cover those as well. 

Investment accounts may also be relatively easy to liquidate, depending on maturity dates and withdrawal penalties, fees and taxes.  Many retirement accounts allow you to borrow against the balance when buying a home.  Check with your investment broker to determine what options are available to you and the best approach to take. 

Low and No-Down Payment Options
If you have exhausted all your resources and still fall short of the amount needed for your down payment, there may still hope in the form of special loan grants and down payment assistance programs.  The Federal Housing Administration (FHA) offers loans requiring as little as 3.5 per cent for a down payment and the funds may be obtained through gifts.  Military veterans or their widows may qualify for no down payment loans through the Veteran’s Administration (VA).

Federal and state agencies and national non-profit organizations offer assistance through programs that provide down payment and closing cost grants to help those with limited incomes.  Qualifying income levels vary and take into account dependants or children. The purchase price limits are adjusted to meet your income restrictions.  In addition to certain income qualifications, some programs require the buyer to complete a Home Ownership Counseling Course, maintain a certain amount of cash reserves, or buy in certain areas.  These grants typically do not need to be repaid and are a tremendous help to those who need a little help in buying that first home.