| Most mortgage lenders expect
you to put down some cash on your home purchase.
Generally, the down payment is 5 percent, 10 percent
or 20 percent of the sale price. The more money
you put down, the lower your mortgage payment,
or the more house you can afford to buy.
Some lenders will overlook past credit blemishes
and not verify your income and other financial
status, if you have 25 percent to 30 percent for
your down payment.
Tip
Be sure to have your down payment ready at least
60 days before you apply for a mortgage loan.
Example
Let’s say you make $40,000 a year. Your
maximum monthly mortgage payment (28 percent of
gross income) would be $933. Assuming your total
monthly debt is no more than $1,200 (36 percent
of gross income), the bigger the down payment,
the more expensive the house you can buy.
For instance, let’s say the monthly mortgage
payment of $933 has an interest rate of 7.5 percent.
In a 30-year fixed-rate mortgage, that monthly
payment covers a total principal of $133,435.45.
With 10 percent down, that mortgage would cover
a house worth $148,262. With 20 percent down,
the house price would be $166,794.
Factoring in your down payment
You may now want to turn to the bankrate.com calculator,
" How much house you can afford?" and
factor in your down payment. If you are selling
a home, you can apply the equity as a down payment
on the new house. Note: You need to include an
estimate of closing costs in buying the property
(plus selling costs if you’re also selling
a house). Closing costs are generally 3 percent
to 6 percent of the sale price.
Ways to accumulate a down payment
• Start saving as much as you can as soon
as you can. If you’ve already talked to
mortgage lenders and they’ve informed you
that your down payment is insufficient, make it
a priority and find ways to save money such as
foregoing a new car or a vacation trip.
• If you have enough equity in your 401(k)
retirement plan at work, you can borrow the money
from your account. You will be charged prime rate,
with possibly a small margin added on, and you
can have the payments from this "loan"
deducted from your paycheck through payroll deduction
plans.
• Borrow the down payment from family members
or relatives and pay it back monthly. In some
cases, the mortgage lender will require a statement
that specifies the amount of the payment and work
it into your overall debt load, unless both you
and your relatives consider it a gift.
• Investigate mortgages that are insured
by the Veterans’ Administration or the Federal
Housing Authority. These government agencies guarantee
the mortgages and may even get you in the house
without a down payment. For details see the special
programs and first-time buyers section. |
