How to come up with a down payment

Z= ero-down mortgages are fading as lending rules tighten. If you lack the cash to get into that new home, cons= ider these 12 options along with some buying strategies.

N= ot long ago, no-down-payment loans were the height of fashion for homebuyers. = But now that lenders have tightened their standards, borrowers once again are expected to "put some skin in the game," to use a favorite indust= ry catchphrase.

T= hat "skin" refers to the borrower's own cash, and it means down payme= nts are definitely back in style.<= o:p>

T= he chief advantage of a down payment today is simply the ability to qualify fo= r a loan, as only a handful of so-called zero-down loan programs still exist. Y= et down payments have other benefits, too.<= o:p>

T= he more money you put down to buy a home, the smaller your monthly payments wi= ll be, explains Greg Gwizdz, the national sales manager at Wells Fargo Home Mortgage in Des Moines, Iowa. <= o:p>

A buyer's down payment becomes a homeowner's instant equity when the purchase closes, and that equity can be borrowed against with a home-equity loan or = line of credit. Guidelines to qualify for these loans have become much stricter, however.

A= nd, Gwizdz adds, many first-time homeowners are "surprised by the true cos= t of owning and maintaining their home." So they should keep some reserves rather than allocate every dollar to their down payment. Some loan programs require cash reserves for this reason.<= o:p>

O= ther benefits of a down payment include:<= o:p>

Borrowing less money= to buy the home.

Shopping among more lenders, loan originators and loan products.

&n= bsp; * Getting a lower interest rate.<= o:p>

Paying less for mort= gage insurance.

Avoiding mortgage insurance altogether if the down payment is at least 20% of the home's purc= hase price.

How to get a down payment

Many homebuyers have difficulty coming up with a down payment. Here are a dozen ways to do it: <= /span>

Set up an automatic saving plan.

Get a gift from your parents, grandparents, other relatives or friends.

Sell a car, boat, motorcycle, collectibles or other assets.

Liquidate stocks, mu= tual funds, savings bonds or other investments.

* Allocate your income tax refund.<= /span>

Take a loan from your 401(k) retirement plan and repay yourself with interest.

Withdraw funds from = your 401(k) plan, subject to taxes and penalties.

Collect on a loan th= at you made to someone else.

Get a bonus from your employer.

Explore homebuyer programs for public servants if you qualify.

Apply for a state or local government down-payment program. <= o:p>

Use a private down-payment assistance program.<= o:p>

A down payment needs to be "sourced and seasoned," Gwizdz says. That means the lender needs to know how you obtained the funds and that you've h= ad control of those funds for at least several months.

G= ifts and seller's concessions are acceptable, up to the percentage allowed by the loan program, but borrowed money can't be used as a down payment, as it is = debt that has to be repaid.

Government-backed programs <= /o:p>

Two government-run programs are designed to aid homebuyers who haven't saved much for a down payment. The Federal Housing Administration (FHA) offers mortgage insurance that allows qualified buyers to purchase a home with a 3.5% down payment, a= ll of which may be a gift. The U.S. Department of Veterans Affairs offers a home-loan guarantee program that helps military veterans buy homes with no = down payments.

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Down payment or closing costs?

Should homebuyers who have limited funds allocate more money toward their down payment or set asi= de some share of the total for closing costs?

T= he simple answer is that the down payment should be the priority, up to at lea= st 5% (or 3.5% for an FHA-insured loan) of the home's purchase price. Thompson explains why: "It doesn't matter if they have the money for closing co= sts if we can't show (the lender) that they have the money for the down payment."

If you've saved enou= gh for a down payment but not closing costs, here are some options:

<= span style=3D'font-family:Symbol;mso-fareast-font-family:Symbol;mso-bidi-font-fa= mily: Symbol;color:#444444;font-style:normal;mso-bidi-font-style:italic'>· Ask the seller to pi= ck up the tab.

<= span style=3D'font-family:Symbol;mso-fareast-font-family:Symbol;mso-bidi-font-fa= mily: Symbol;color:#444444;font-style:normal;mso-bidi-font-style:italic'>· Pay a higher interest rate in exchange for lender-paid closing costs.

<= span style=3D'font-family:Symbol;mso-fareast-font-family:Symbol;mso-bidi-font-fa= mily: Symbol;color:#444444;font-style:normal;mso-bidi-font-style:italic'>· Wait to buy a home u= ntil you've saved more money.
If you want the seller to pay the costs, you should discuss that concession upfront before you sign a purchase contract, because payment of costs is a negotiable term that affects the seller's net proceeds from the transaction, Thompson explains.

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Shane Brannan
Mortgages and More,Inc.
Senior Residential Mortgage Advisor
205.492.1413 Direct