Tips to Save for a Down Payment
Are you interested in purchasing a home, but struggling with the prospect of raising enough cash to save for a down payment? You’re not alone. Many of our clients find that coming up with a down payment is the final roadblock they must overcome before purchasing a home. How much you’ll need depends on what type of loan you choose – most conventional and nonconventional mortgages (except USDA and VA loan) require at least some sort of down payment.
If you’re interested in a hard money loan, you’ll need to supply a down payment. In this week’s blog form Associates Home Loan of Florida, Inc., we’ll discuss a few tips to save for a down payment and plan for success as a homeowner. If you live in Orlando, Tampa, or Sarasota, we’d love to talk to you further. Contact us to get started.
Conventional and Nonconventional Down Payment Guidelines
Most conventional home financing options require a down payment of at least 20%. In some cases, lenders offer “piggyback” loans, in which part of the down payment requirement is financed in a separate, junior loan that doesn’t need to be paid up front. In other cases, borrowers with excellent credit and financial standing may be able to secure a lower rate. Jumbo loans, however, which are high-value conventional loans, always require at least 20% down.
Nonconventional loans were created to help clients get more affordable, accessible home financing. Because of this, they typically have much lower down payment requirements. VA and USDA loans, for example, have no down payment requirement, and FHA loans range from 3.5-10%. If you make every effort to raise a down payment and are still struggling, these are great home financing options to consider, though they do have zoning restrictions, income limitations and other requirements.
Commit to a Down Payment Fund
You’ll want to keep your down payment fund separate from any other savings or contributions, so we suggest opening an account specifically for this purpose. You may choose to have part of your paychecks direct deposited into this account, so you can save over time without having to remember to make contributions. If you do open a special down payment savings account, talk to a banker about your specific purpose and projected timeline. He or she will be able to help you open an account with the highest yield in the time you’re saving.
If you receive any year-end bonuses, vacation payout, or other bonus funds from work, you may want to consider contributing these, as well, to your new account. Because it’s unexpected cash, you’re less likely to miss it if you transfer it to your down payment fund.
Other Options to Raise Funds for a Down Payment
If you’re unable to save enough in your projected timeline, you can investigate borrowing against your long-term retirement savings accounts like a 401(k) or IRA. This comes with a huge disclaimer, however: if you withdraw more than a certain amount from either account, you could face a penalty and will need to pay yourself back over time. Most IRAs, for example, allow you to borrow up to $10,000 before you incur a penalty, but you’ll need to pay yourself back.
It’s important to remember that you can receive all or part of your down payment requirement for some mortgages as a gift. If you have a friend or loved one who can gift you the down payment, you may be able to secure your loan and buy your new home earlier than you thought.
Let’s Take a Closer Look at Your Options
If you’d like to talk more about how to save for a down payment, call Associates Home Loan of Florida, Inc. We’ll walk you through conventional and nonconventional loan options and their associated requirements. We work with clients in Orlando, Tampa, and Sarasota, and we’d love to help you achieve the dream of owning a home.