Having our first home is a big achievement to each and every one of us. I mean who does not want to have their own homes at a very young age? We all know that owning one can be very expensive and it will take you a lot of time to figure out on how to budget your expenses and save some of it for your dream home. How do you think Americans afford down payments in purchasing new homes? That is the question that we all ask and we finally have some answers for you. These lists came from real people with their real life experiences and I know that some of you are very excited to know their tricks. Owning your own home is the ultimate American Dream but it is a dream deferred for most people. The rising home prices are the main reason why it is difficult to many would-be buyers to save enough for the asked amount for down payment. 20% is a good amount for down payment but remember, it is not mandatory and one of the reasons that they want you to pay the 20% is that you are going to avoid the mortgage insurance, your monthly payment will be lower, earn a lower mortgage interest rate and lenders will be most likely to compete for your business. One thing is for sure guys; please do not drain all of your savings accounts regardless of how much you put down. You will want to have money on hand for your expenses and that includes closing costs, homeowners insurance and property taxes that usually come when you move in and buy. Always be prepared to spend even more on the appliances for your dream house and in worst case scenario, what if the heater is broken? That is why you need spare money.
Frustrated renters always wonder how buyers are able to come up with down payments for their first place. Well actually, chances are, they are not! Though some of the lucky first time homeowners are diligent and responsible saver who can come up with a down payment; many buyers usually put away less than the 20% down payment asked. All of the finance experts often recommend a large amount payment and the reason is that it will give you the equity in your home and it means paying a smaller amount every month also it will give you the power to avoid the mortgage insurance. Are you ready now? Let us start now with our lists.
- Save Money – Keep track of the ins and outs of your money every month. Make a list especially on the outs of your money and in order for you to track everything. Always group your money into its designated payment like bills, groceries, health insurance and for your home savings. Saving money at a very young age will give you a lot of choices when you have enough down payments for your new home. Do not go for the houses that you can’t afford and there is nothing wrong when you buy a small house for starters. The important thing is that you have your own home and know all your options too. Most of the Americans don’t have a basic understanding of what it takes to financially buy a new home or if they get to meet the criteria. Keep in mind that you need to know if you can afford a home and its financing options that are available to you.
- FHA Loan – Most of the people who can’t afford a big down payment, they always go to the Federal Housing Administration loans which make 22% of all mortgages in the United States. Interest rates are lower and buyers with less than perfect credit can also get approved. The downside of the FHA loan is the mortgage insurance which helps protect your lender in case you default on your loan and that usually happens to some of the family. You will pay 1.75% of the home’s value up front and that comes with the monthly insurance premium and you don’t want that to happen. You will be stuck with that premium for the whole duration of your loan. However, you can be also refinance your FHA loan and get out of paying your mortgage insurance once you have enough equity in your home.
- Ask for help – Asking for help in buying your new home is nothing to be ashamed of. When you have plans to borrow a large amount of money for the payment, make sure that you are going to pay them in no time. Negotiate with them and tell them with all your heart that you can only afford this amount each month and you badly needed a new home. Always remember that renting is not a good thing in a way that you always pay the monthly rent of $800 every month and the place will never be yours. Paying for a home that will be yours in the future is a big different than renting. Yes you may have to spend more and lessen your old habits like going to the bar or eating in a fancy restaurant. There are a lot of things that will be sacrificed when you are committed to paying your monthly payment for your dream home. Also, most of the families who are just starting of a family have been asking help from their parents so it is not a big deal at all. Most of the homeowners who usually can’t come up with the cash for the down payment on their own money often turn to family and friends for help.
- Debt Free Life – Have you experienced living a debt free life? It may sound impossible but it can be achieved. Living a debt free life may seem hard but if you can achieve that, saving the 20% down payment for your new home will be easy as 1 2 3. Are you open to living in together with your better half? Well this is the 21st century now and it is very common to live with the one that you are going to spend the rest of your life with. The good thing about living with them is that you have someone to split all the monthly bills and you both can save money for your future home. Brilliant, isn’t it? What are those monthly bills that you rarely use? If you have 2 or more, (which is better) then you better cut them off if you rarely use them. It will help you save a lot of money for the down payment.
- Choosing the right City – Before you decide on where you want to settle, you need to choose the right city. My advice is choosing a city that is affordable like the Cleveland, Ohio. Living in an affordable city will let you save a lot of money and you will have time to travel too. Remember, your expenses will really depend on which city you live in and it is the same story when it comes on your salary.
- Government Programs – FHA Loan is the number one well-known mortgage assistant programs from the government of the United States but remember, this is not your only option. Have you heard about the U.S. Department of Agriculture? Yes, the U.S. Department of Agriculture also offers loan programs and it helps people buy new homes in eligible rural areas with 0 down payments. But of course you will have to pay for the mortgage insurance premiums and you don’t have to worry as the amount is less than a similar to FHA loan and interest rates are lower as well. The good thing about the government programs is that the Department of Veterans Affairs backs the VA loan which allows our beloved veterans to buy homes with no money down and with no mortgage insurance.
- Low-money mortgage – The government is not the only place you can go when it comes to low-money-down mortgages. Some of the banks are reluctant to originate all the FHA loans but given the costs are also involved and they already begun to roll out their very own products to attract all the first-time home buyers in the United States. JPMorgan Chase and Wells Fargo are among the banks who offer loans with as low as 3% down and also the Quicken Loans has 1% roll out loans. All you have to do is to have a good credit to be able to qualify and you will have to bring your own private mortgage insurance which can add up a hundreds of dollars every month. Please note that you can always cancel your PMI (private mortgage insurance) when you reach the 20% of your loan. There are a lot of lenders who also has low-down payment loans without any mortgage insurance and that includes the Bank of America’s Affordable Loan Solution but please also expect a higher interest rate for these loans that they offer.
- Piggyback Mortgage Application – Some of the buyers avoid the PMI but can’t afford to give 20% of the down payment may somehow consider getting a so called piggyback mortgage or getting a second loan to cover part of the 20% down payment. You might have a conventional mortgage for the 80% value of the home and the second piggyback mortgage for 10% value of the home and a 10% down payment as well. The second mortgage or the HELOC is a home equity line of credit. You need to also have a good credit in order for you to get this kind of loan and the interest will usually be higher and may fluctuate with the market rates as well. All the buyers will likely to use a piggyback mortgage if the home that they want costs more than the conforming loan limit in their area and that depends in the area too. These loans require a large down payment and a piggyback mortgage can help buyers reach that number.
- Payment Assistance – Does anyone here wishes to have free money? Oh I hope that indeed is true but there are actually people who are willing to give you cash to buy your dream home. Most of the down payment grants and helps the low and middle income Americans to bridge the gap between their savings and the amount needed for the amount of the down payment. On the other hand, you can also qualify for the amount of thousands of dollars in assistance. Many other cities have similar programs as well. The only requirement they need is that you need to meet the income and purchase the price limits in order to be qualified for most of the assistance programs but the limits are higher than most of the people realize.
Before we end our discussion, I would like to add more. Remember that the 20% down payment is a decision that depends on your financial situation and in how long you plan on being in a home. Did we miss something? Please let us know with your comments below! By the way, good luck and share us don’t forget to share the photos of your new homes!
