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How to raise funds for a down payment

[Aug 17, 2011.]

 

Most real estate experts agree that the biggest obstacle for first-time homebuyers is the down payment. Even with low-down-payment programs such as FHA mortgage loans, buyers need to come up with at least 3.5 percent of the home value, along with some funds for closing costs and enough money left in the bank for cash reserves. On a $200,000 home, that means buyers will need more than $7,000 for a down payment.


If you are also faced with the challenge of rebuilding your credit or improving your credit by paying off debt, it may seem like an impossible hurdle to gather the cash for a down payment. While there are some mortgage lenders offering low- or even zero-down-payment mortgage loans, these programs generally require excellent credit and are often restricted with a maximum loan amount. VA loans that do not require a down payment are available for veterans and, if you live in a rural area, you might qualify for a USDA Rural Development loan which also does not require a down payment.


If you don't qualify for one of those programs, you'll need to find a way to get some extra cash.


Mortgage lenders and down payment funds


If your parents are willing to help you buy a home, you'll need to document the money they give you and they'll need to sign a letter to mortgage lenders stating that the funds are a gift.


Other options for down payment funds include:



  • Borrowing from your 401(k). Just make sure you can repay the money, since you are reducing your retirement savings.

  • Selling items on eBay or at a yard sale. Every little bit of cash helps and this will also help you get organized for a move.

  • Save the difference every month between your current rent and the amount you expect to pay on a mortgage. You'll get used to the payment and build up cash.

  • Get a part-time job or ask for overtime and stash every extra dollar of income into a savings account.

  • Slash your budget. Trimming your grocery bill, your cable and phone bills and eating at home more often can add to your savings account.


While asking others for money may seem easier than creating a strict spending plan, remember that your goal of becoming a homeowner will also require proving to mortgage lenders that you will be disciplined and will repay your home loan. What better way to do that than establishing a financial plan and building up your savings?


For mortgage loan options in your area, go here.

 

About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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