Lenders have tightened their guidelines & buyers are again are expected to "put some skin in the game." That "skin" refers to the borrower's own cash for the down payment & closing costs.
Benefits of a down payment:
- Borrow less money to buy the same-priced home.
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- Shop among more lenders, loan originators and loan products.
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- Get a lower interest rate.
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- Pay less for mortgage insurance.
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- Avoid mortgage insurance altogether, if the down payment is at least 20 percent of the purchase price.
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Ways to obtain down payment money:
- Set up an automatic saving plan.
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- Get a gift from your parents, grandparents, other relatives or friends.
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- Sell a car, boat, motorcycle, collectibles or other assets.
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- Liquidate stocks, mutual funds, savings bonds or other investments.
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- Allocate your income tax refund.
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- Take a loan from your 401(k) retirement plan and repay yourself with interest.
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- Withdraw funds from your 401(k) plan, subject to taxes and penalties.
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- Collect on a loan that you made to someone else.
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- Get a bonus from your employer.
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- Explore homebuyer programs for public servants, if you qualify.
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- Apply for a state or local government homebuyer down payment program.
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- Use a private down-payment assistance program.
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Ways to pay closing costs:
- Ask the seller to pick up the tab.*
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- Pay a higher interest rate in exchange for lender-paid closing costs.**
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- Wait to buy a home until you've saved more money.
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*If you want the seller to pay the costs, discuss that concession upfront, before you sign a purchase contract because it affects the seller's net proceeds from the transaction.
**Borrowers can reduce or even eliminate closing costs by paying a higher interest rate on their mortgage. The rule of thumb is an additional 1/8% higher interest rate will net a credit against closing costs equal to approx 1/2% of the loan amount. For example, an additional 3/4% in interest might eliminate closing costs of 3%.
"Instead of a full 3/4% higher interest rate, you could lower closing costs by increasing the interest rate a lesser amount.
www.MortgageAdvisor.info & www.GregZaccagni.com
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