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The Down Payment

The amount you have available for a down payment will affect what types of loans for which you can qualify. Down payments typically range from 3 to 20 percent of the sales price for the property.

Tips for Accumulating a Down Payment

  • Save
    Look for ways to reduce your monthly expenditures to save toward a down-payment. You could enroll for an automatic savings plan at your bank to have a portion of your payroll automatically transferred into savings. Most people save a couple of years for their down payment.

  • Borrow the down payment from your retirement plan
    Check the provisions of your retirement plan. You can borrow funds from a 401(k) plan for a down payment or make a withdrawal from an Individual Retirement Account. Be sure you understand the tax consequences, repayment terms and/or possible early withdrawal penalties.

  • Move
    You may be able to save additional funds if you can move into less expensive housing.

  • Reduce other higher interest rate debt
    Paying off credit cards will initially reduce your savings, but the money you will save from higher interest rates will pay-off in the long run.

  • Make a deal with the seller
    In some circumstances, it is appropriate to ask the seller to carry a second-mortgage to cover your down payment. Typically, you will pay a slightly higher rate for this second mortgage.

  • Sell some investments

  • Get a second job and save your earnings

  • Skip a year's vacation

  • Gift from Family
    Parents and other family members are often anxious to help children buy their first home and may have the means to give you a gift of money for a portion or all of your down payment.


Alternative Sources

  • No-down and low-down Mortgages

    • FHA Loans
      The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), plays a significant role in helping low- to moderate-income families qualify for mortgages. FHA assists first-time buyers and others who would not qualify for a conventional loan, by providing mortgage insurance to private lenders. Interest rates for an FHA loan are usually the going market rate, while the down payment requirements for an FHA loan are lower than conventional loans. The required down payment can be as low as 3 percent and the closing costs can be included in the mortgage amount.
       

    • VA Loans
      VA Loans are guaranteed by the U.S. Department of Veterans Affairs. Service persons and veterans can qualify for a VA Loan, which usually offers a competitive fixed interest rate, no down payment and limited closing costs. While the VA does not issue the loans, it does issue a certificate of eligibility required to apply for a VA loan.
       

    • "Carry Back" Mortgage
      In the case of the seller "carrying back a second mortgage", the seller loans you part of his or her equity. In this scenario, you would finance the majority of the loan with a traditional mortgage lender and finance the remaining amount with the seller. Typically you will pay a slightly higher interest rate on the loan financed by the seller.


  • Be Prepared By Providing Bank Statements Showing Your Funds Are 'Seasoned' In Your Checking or Savings Accounts For At Least 2 Months


  • Documenting Your Down Payment

    Documenting that the down payment comes from your savings and that you will have savings and/or assets over and above the down payment gives the lender confidence in your strength as a borrower and your ability to repay the loan.

    Take extra care to document the sources for any monies to be used for the down payment or closing costs.

    Acceptable Down Payment & Closing Costs Sources

    • Cash in a bank account
    • Mutual funds / stocks / IRA / 401K
    • Proceeds from the sale of another property
    • Gift from an immediate relative
       

    Click here to learn more about verifying your down payment, closing costs, income and debt.