Your down payment and how to get one.
Back in the go-go years of the early 21st century, banks were making loans to buyers putting down as little as 5%. Some banks even made loans of 100% of the purchase price, which was one of the factors in the banking collapse that later ensued in 2008. Banks how have change heir tune greatly, requiring at least 20% from a well qualified buyer before they even consider writing a loan.
Unfortunately, few people have that much cash available to them. But the fact remains that the more a buyer puts down, the lower the mortgage. Low mortgage balances carry low mortgage payments.
Here are some ways to find that down payment.
Save Your Tax Refund
We all have trouble saving. How about changing your withholding exemptions from 1 to zero. This makes your employer pay more to the I.R.S. and reduce your paycheck by that amount. If you can’t save easily, this method assures a larger income tax refund.
Borrow From your Parents or sympathetic Relatives
Not many of us have a rich uncle to hit up for some cash but it’s not unusual for parents to help their children buy a home. Favorable tax laws allow each parent to gift up to $10,000 a year or possibly more without tax consequences. Ask an accountant for the details.
If your parents won’t just give you the money, propose setting up an unsecured loan and pay it back to them at a better rate than your parents could get at the bank. The rate you pay would likely be less than the prevailing rate from your own lending institution, which makes it win-win for everybody.
Save, save save.
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.
Sell Useless Stuff
Everybody has useless stuff in their basement or attic. Clothes, collections, memorabilia, exercise equipment (how many treadmills are doing duty as clothes racks in laundry rooms all across America?) 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.
Ask the 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. The Nehemiah program, for example, allows up to 6% as a credit from the seller.
Settle Lawsuits Fast
Are you currently suing anyone? Settle soon! Delays just make the lawyers more money and they are experts at finding ways to delay, delay, delay. Settle the case quickly and use that reward to help you buy a house.
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.
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.
Earn More Money
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 résumés to companies where you want to work, regardless of whether it advertises a position.
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.