As house prices are skyrocketing, so are down payment requirements. In November, the median price for homes was $ 379,000. Even with a low down payment FHA loan (3.5% is required), that would come with a down payment of over $ 13,000 – hardly a pocket change for most homebuyers.
So how should buyers pay for these ever increasing costs? There are a lot of options, but here are the top three.
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If you can cover your down payment costs with savings, this is ideal. There will be no interest charges or application process, and you can easily get payment through your bank or credit union.
You’ll just want to make sure you still have plenty left over for emergencies. Most financial experts recommend having at least six months of spending on hand. As a homeowner, you will need enough to cover your mortgage payments, utilities, taxes and other bills, as well as any unforeseen repairs that may arise.
Keep in mind: you can also use a low down payment loan program to minimize the savings you will have to spend. Many loans require as little as 3% down payment. (If you qualify for VA and USDA loans, the required down payment is zero.)
2. Down payment bonuses and assistance programs
Many states and municipalities offer down payment assistance programs that can help cover your costs. These vary by region and are often reserved for low-income buyers, but if you qualify, they could cover some or even all of your initial down payment (as well as closing costs).
In some cases, this assistance may need to be repaid, although generally the repayment requirement is waived as long as you stay in the house for a certain number of years. And with other programs, your aid may actually be a grant, meaning it never needs to be repaid.
To find a program in your area, contact your state housing agency or use the Department of Housing and Urban Development’s state housing guide.
Crowdfunding is becoming an increasingly popular way to fund down payments. Many people ask for donations in lieu of graduation or wedding gifts (a friend of mine did this last month!), And others are setting up large-scale crowdfunding campaigns on sites. like GoFundMe or Feather the Nest. They will then solicit their friends, family and social network for contributions until they reach their goal.
A similar option is to get cash as a gift. Your mom, dad, siblings, aunts, uncles, or grandparents can write you a check for the deposit and you can use those funds on closing day. As long as it’s not a loan (meaning it doesn’t need to be repaid), it’s usually allowed by most loan programs and lenders. They will just need to write a letter stating that it is a gift and that they are not expecting a refund.
The many ways to pay
Of course, these aren’t the only ways to pay a deposit. You can also take a loan from your 401 (k), ask your employer for help, or use your tax refund if it’s big enough. If you sell a house and buy a new one, you could even use the profits from your previous sale to cover costs.
The best option really depends on your unique situation, your real estate goals, and your budget. If you’re not sure, talk to a financial advisor or mortgage broker to find out how to determine the best down payment method for you.
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