Down payment funding alternatives

For many buyers, especially first-time buyers, saving up the funds for the down payment can be a seemingly insurmountable hurdle to home ownership. This doesnt have to be the case. As your mortgage broker, I can help you find creative ways to come up with your down payment.

Using a gift for your down payment
One way to fund a down payment is by using a gift. For many loan programs, a gift may be used for a portion or all of the required down payment. Money given as a gift for a down payment cannot come from just anyone. Members of your family are the usual source, or sometimes your employer may be an acceptable source. If this option is open to you, please let me know. I can help you determine which loan programs accept gift funds for down payments and who may donate. I will also supply the gift letter that the donor is required to sign. The gift letter states that the funds are a gift and will not be paid back.

Down payment assistance charities

If a willing and able family member is not available, buyers used to have the option of turning to a non-profit for down payment assistance. A new federal law has eliminated this option for the time being, however, many people in the real estate and mortgage industry are hard at work trying to bring this option back.

Caution should be taken when searching for a down payment assistance charity (aka down payment assistance program). There are many reputable organizations providing buyer assistance, but there are dubious ones as well. You may want to research the charity with the Home Gift Providers Association (HGPA) (http://www.downpaymentalliance.org/) before making a commitment.

Generally, it used to work that a down payment assistance charity would give the buyer money for a down payment that would not have to be repaid.  The seller would contribute an equal sum to the charity at closing or soon after.  The seller would also pay an administration fee to the charity.  Sounds good, right? 

This had been a good option for buyers who did not have other means of securing a down payment.  However, you should be aware that this means of funding the down payment sometimes inflated the selling price of the house. You will want to consult with your real estate professional about how such a program may affect the selling price.

Zero down mortgage loans

Service persons and veterans can qualify for a VA Loan that requires no down payment.  VA Loans are guaranteed by the U.S. Department of Veterans Affairs.  In addition to no down payment, these loans usually offer a competitive fixed interest rate and limited closing costs.  While the VA does not issue the loans, it does issue a certificate of eligibility required to apply for a VA loan.

There have also been private sector alternatives that offered 100% financing of the home purchase price in the past. Because of the current tight money situation most of these types of loans have gone by the wayside. However, on occasion we do have a lender or two that is still willing to consider this practice. Be sure to ask about this option when you speak with one of our loan officers if a zero down payment mortgage interests you. This option does require a squeaky clean credit rating, however. Let us help you find the down payment and mortgage alternative that is right for you.