Love Buying a Home Series

The “Love Buying Your Home” series will take you step-by-step through the entire home-buying process — from finding a buyer’s agent to settlement day, and even to maintaining your home after you’re all moved in. Every first-time buyer will find this information-packed series easy to follow and understand. Make sure to tune in for the next few weeks!

One of the biggest roadblocks for many buyers is the down payment.  It especially stops many first time buyers from moving forward … but you don’t have to let that happen to you, especially if you think you need 10% or 20% down.  You might not!

It’s definitely not “one-size-fits-all” these days!  Every buyer’s financial situation is different and you may even qualify for a grant or other downpayment assistance program or get your PMI waived, making your first home more attainable.

Plus, there are also some creative ways to get your down-payments such as creating a savings plan, using your tax return, and even borrowing from family or your retirement account.

What is a Down Payment?

When applying for a mortgage to buy a house, the down payment is your contribution toward the purchase and represents your initial ownership stake in the home. The lender provides the rest of the money to buy the property.

How Much Do I Need?

The minimum down payment required for a house varies depending on the type of mortgage:

• FHA Loans, which are great for first time home buyers, require as little as 3.5% down.
• VA loans, for veterans, usually do not require a down payment.
• USDA loans, backed by the U.S. Department of Agriculture’s Rural Development Program, also have no down payment requirement. USDA loans are for rural and suburban home buyers who meet the program’s income limits and other requirements. In Utah County, this is anywhere south of Springville.
• Some conventional mortgages require as little as 3% down.

Down payment requirements can also vary by lender and the borrower’s credit history. The minimum down payment for an FHA loan is just 3.5% with a credit score of 580 or higher, for example, but the minimum is 10% with a credit score of 500 to 579.

Benefits Of a Larger Down Payment

• A better interest rate.
• Lower fees.
• More equity in your home right off the bat.
• A lower monthly mortgage payment.

With how fast home prices are changing in Utah, many homebuyers feel that they are in a better financial position if they get in a home as soon as they can, with a lower down payment, so that the home prices don’t price them out of the market. This is definitely something to consider!

Should You Use Your 401K Money?

Many people think that this money is more off-limits than it really is. Before doing this, check what the rules are for withdrawing early, and what penalties there may be. Check with your employer to see if your 401(k) plan allows for loans. Remember if you leave or lose your job, you may have to pay back the entire amount in 60 days or sooner. So be sure you understand any tax consequences, penalties and charges as well as repayment terms.

Boost Your Savings

This is the one that you have the most control over! Here is a trick that I like to tell people to try out: make practice mortgage payments. What I mean by this is, set up a savings account that you pay mortgage to every month. If you think your mortgage will be around $2,000 per month, deposit that same $2,000 into your savings account every month. This will show you have comfortable it is to pay this mortgage, and help you save up money along the way.

Gift Money From Family

It is pretty common for immediate family to help out with down payment costs. There are some things to know first, your family member will have to write a letter stating that they do not expect repayment for this amount. Otherwise, your lender would have to count it as debt. Also, make sure it isn’t more than $15,000 per family member, there can be tax penalties if it exceeds this.

Tax Refund

Consider changing your withholding exemptions from 1 to zero. This will pull more money out of your paycheck, but when tax season comes around you will be getting a larger refund. This is helpful for people that spend money if it is in their bank account, because it forces you to save it.

If you want to be a homeowner, let’s explore the options.  There are loans only available for first-time buyers that don’t require a big downpayment.  Most buyers don’t need as much of a downpayment as they think! Let’s discuss your specific financial situation and what’s possible for you.  This is the part at stops most buyers who can afford a home, simply because they don’t have all the information they need to make the right decision, but not you!

Keep coming back here each and every week to learn more about the home buying process and reach out to me through email at mccall@youragentmccall.com anytime with questions about how what you are learning applies to YOUR specific situation.  Just like every real estate agent is unique, so is every buyer and I’d love to help you apply what you are learning in this series to YOUR home buying plans.