This week I will begin discussing how to put together a down payment for purchasing a house. This is an important piece of the house buying process that many people struggle with. The first thing that you need to understand is why you need a down payment. Banks require a down payment because it is their way of making sure that you have an interest in doing the right thing with the property.
If you have ever heard the saying that you won’t respect something that you get for nothing then you can kind of see where they are coming from. The bank has to risk the fact that you will continue to pay your mortgage payment every month for 30 years. That’s a pretty big risk. The banks feel that if we are going to take this risk for you then you should have something invested in the deal too. That way you are more likely to put your best effort forward when trying to pay them.
Now the down payment amount differs depending on the type of loan you are getting and your credit, and job history, etc. most often banks would like to see about 5-10% down. In some instances you can use a government-backed mortgage like FHA. If you use one of these mortgages then you are looking at a down payment of around 3%-5%. Not everyone qualifies for these types of loan and the process to get these loans is a little more strict then other loans.
Now there are a few ways that a bank will allow you to put together the down payment that you need to buy a home. The first and most widely accepted way to get a down payment is to obviously use your savings. Many people don’t have the savings necessary to put down on a new home but if you do then congratulations you are on your way. The next way to get a down payment together is to have someone give you a gift. For example parents, or a relative, or even a friend can give you a down payment as a gift. Please understand that this would be a gift NOT A LOAN.
The bank does not want you to borrow the down payment because that defeats the purpose of you putting together a down payment in the first place. To try and protect against this the bank will make whoever gives you the gift write a letter stating that the money they gave you was a gift and not a loan. If you don’t have someone that you can get to give you the down payment then you always try and get the seller of the house to give you the down payment.
Banks aren’t too fond of this and the banks that do allow this are often charging you a higher interest rate in exchange for them taking on a greater risk. The way to borrow the down payment from the seller is to have the seller agree to give you a portion of the down payment at closing. The seller may agree to this because it allows for more buyers to possibly buy his house. If nothing else it never hurts to ask.
Till next time, Good luck and God Bless and remember… If you have any questions about saving or selling your home or any topics on real estate that you would like to know more about please email me and I will answer your questions in this column.
Arthur V. Veal IV is the owner of We Buy Houses Home Services, a real estate investment company. They specialize in selling houses with owner financing. They have sold hundreds of houses to deserving families that were not able to get bank loans at the time. His company boast an 83% success rate when helping their buyers refinance the house that they get owner financing on. Find out more about there programs by visiting their site at http://www.ownwithnobank.com