Download Putting the Down Payment Together

Putting the Down Payment Together
Courtesy of Jose De Jesus
www.reliablepropertymanagementandsales.com
Any effort put toward purchasing your home is well worth it. Not only will you gain an
improved lifestyle, home ownership still offers one of the best tax advantages available today. It
will also increase your personal net worth. The person who rents for 10 years will put anywhere
from $50,000 to $100,000 in their landlord's pocket instead of their own. The following are
some of the options available for securing a down payment in order to purchase a home.
QUALIFYING RATIOS
Most lenders won't let you borrow an amount that would require more than 28 percent of your
gross income for the monthly mortgage payment, but most do allow your total debt to reach up to
36 percent of your gross income You do not have to be debt free to qualify for a mortgage as
long as your debt is within a certain range. Your long-term debt (credit card balances, and
student and auto loans, for example), should be within 8% of your gross monthly income. If it is
over that limit, many lenders won't even consider lending to you, regardless of the amount of
money you have for a down payment.
FINDING THE DOWN PAYMENT
First, look into loans insured by the Federal Housing Administration (FHA). With a loan insured
by the FHA, only 5 percent down payment is required. Currently, however, FHA insurance is
available only on loans of less than $118,600.
Also, private mortgage insurance (PMI) can help you buy a home with as little as 5 or 10 percent
down. PMI covers the difference between your down payment and the amount of down payment
the lender typically requires on the same loan. As the name implies, PMI is obtained through a
private company. First-year premiums are usually between .35 and 1.65 percent of the total loan
amount and, depending on policy requirements, you must pay the premium either in advance or
monthly. So if your loan amount is $100,000, you'd pay between $350 and $1,650 the first year.
As soon as your equity in your home reaches 20 percent, you may not be required to have PMI
any longer. This is the option of the lender.
If you or your spouse is a veteran, consider looking into loans guaranteed by the Veterans
Administration (VA). Except for its graduated-payment and growing-equity mortgages (GPMs
and GEMs), loans guaranteed by the VA require no down payment, and the seller may pay your
closing costs. You can get a VA loan for up to $184,000 and the interest rate is sometimes less
than that of conventional loans.
Finally, if none of these options are feasible, is it possible to turn to someone you know for the
down payment? Parents, other relatives, or friends can present you with an outright gift of a
down payment. Remember that a gift of the down payment is better for you because a lender will
count a loan for a down payment as part of your long-term debt, which can either lower the
amount of the loan you'll qualify for or disqualify you. Parents can give children up to $40,000 a
year without paying federal gift taxes. However, if the gifted amount is less than 20% of the
purchase price, borrowers must contribute 5% (of the purchase price) of their own funds.
Do you belong to a credit union from which you can borrow? Any loan from a credit union
would have to be on a secured basis (i.e. car). Or can you borrow from your pension plan at work
if you're vested or from a profit-sharing plan? For example, you can typically borrow from a
401(k) plan through work, and you usually have ten years to repay the loan. Often, the interest
rate for the loan is tied to short-term Treasury notes or is within two points of the prime lending
rate.
Special Rules for IRA’s
Although you cannot borrow against the IRA account, you can actually withdraw that money
outright. Keep in mind that when you withdraw from your IRA, you must pay a 10 percent nontax deductible penalty on all funds withdrawn. You must also add that amount to your taxable
income on you annual tax return and pay taxes on it as you would any other income. So use
caution when you're considering an IRA withdrawal. Weigh the cost of the tax penalties
carefully.
Sincerely;
Jose De Jesus CRMS, Broker
www.reliablepropertymanagementandsales.com