Thanks June for a well written and informative post on saving for a down payment.
Just wanted to add that there is still 100% financing available with VA (available for veterans) and USDA loans(for properties in more rural areas).
It helps to speak with a loan officer to determine the best loan to meet your goals.
Maryland Mortgage Mama
Taking the Stress Out of Saving for a Down Payment
Are you dreaming of owning a home, and feeling stressed about coming up with money for a down payment? Coming up with 3.5% or more of the purchase price is enough to scare many perspective buyers away. However, even if you don’t have the necessary funds for a down payment in your bank account, there are many other options that you should take into consideration to come up with the money you need to put a down payment on your dream home.
Possibly one of the easiest ways to get a down payment for a home is to borrow against your retirement account. Many people have been investing in a 401(k) plan or traditional IRA for years, and first-time homebuyers may borrow up to $10,000 for their down payment without incurring a penalty, so long as you pay it back. For those who are self-employed—or if your employer allows it—you can also borrow up to $50,000 from your current 401(k) and pay yourself back over five years at a low interest rate.
Another thing you can do is look for down payment assistance grants. Down payment assistance and community redevelopment programs offer affordable housing opportunities to first-time homebuyers, low-income and moderate-income individuals and families who wish to achieve homeownership.
In Maryland there are many such opportunities and even some that are linked to your place of employment. There are FHLB grants of $5,000 that can be piggy backed with SELP/CDA money, there are Live Near Your Work Programs and some lenders have special in house programs. And, if you're thinking about buying in Baltimore City - if you participate in the Live Baltimore Trolley Tour and take the education program you can qualify for another $4,000 grant.
Family is another option that you may want to take into consideration when it comes to securing money for a down payment. Sure, you may be too proud to want to ask for money, but if your family can help you and your family move into your dream home, isn’t it worth it? If you do get help from a family member keep in mind the lender will ask you to sign a form called a gift letter, explaining the relationship and the lender may also require your parents to explain where they got the money and prove that they are financially able to make such a gift. One of my clients recently did this and now they are living in their new home. Be sure to check with your loan officer first though because some loan programs do not allow gift funds for down payment and the money for your downpayment has to be yours. Just one more reason to be sure that you are preapproved for a mortgage before you start looking.
If you’re still not finding the money to put together for a down payment, there’s always the creative lease/purchase agreement. Homeowners who can’t sell their homes in this market will be more amenable to cutting a deal with buyers and may be willing to take part in a lease/purchase agreement, where you rent the home you want to buy and a percentage of your rent is applied toward the down payment. If you go this route, make sure you get a contract outlining all the details so both parties are safe. I am working with a seller and buyer/buyer's agent right now in a lease purchase option. The buyer needed to work on their credit first so we all sat down and wrote up an acceptable agreement and the buyers are living in the house and the price was agreed upon, they are paying rent and have been for 8 months now and building their credit. In 2 months they will settle on their home.
Adding a down payment option to your wedding registry is gaining popularity among those just starting out in life together. Several mortgage companies allow those getting married to set up a down payment registry. What a great way to celebrate the joining of two people in holy matrimony than to help them buy a house. You can set up a trust account at a bank and provide guests with the account number and have them make deposits to the account instead of purchasing a gift. This is fantastic, I have done this with the daughter of a client of mine and they are just about ready to buy.
If none of these things will work for your specific situation, there’s always the old fashioned “saving for a rainy day” tactic. Try putting aside 10 percent of your paycheck each week and make an effort to bring a lunch to work instead of going out. If you’re married, use the money you would spend on birthday, anniversary and Christmas presents and put that toward your down payment. You might also need to forget that vacation this year. It may seem like a lot, but the sacrifice will be well worth it when you’re living in your new home. I received an email from a friend the other day about a large pickle jar by the dresser and at the end of every day the couple would empty their pockets and pocket books of all the change into the pickle jar to save money for their childs college education, but this would also work for saving for a downpayment.
If you are thinking of buying or selling an home in Maryland give me a call at 410-292-0100 or start your search here and we'll talk about the market conditions and what your home could possibly be worth in today's market place if you are thinking of selling. If you are considering buying a home, there is no better time than now to buy. The tax savings and wealth building alone is worth the plunge into todays market. Century 21 New Millennium is part of the largest nationwide relocation company and can assist with your move here in Maryland or anywhere in the United States or abroad. Ask me how.
In keeping with saluting our heroes, during 2012 I am waving flat fees for active duty military, retired military and the families of fallen military, as well as policemen, firemen and emt's. If you enter into a contract by the New Year's eve I will waive the flat fee at settlement. This is a $395 savings. If you are thinking about buying or selling a home give me a call and receive full service real estate assistance from an experienced agent. Our office is open 7 days a week and we can be reached at 410-730-8888 or I can be reached directly at 410-292-0100.
June Piper-Brandon ~ Associate Broker, CDPE, CIAS, ePro
If you are considering purchasing a home in Maryland and want to be sure you are mortgage ready, my brother Tony and I will be happy to help! We help to make the mortgage process a pleasure!
If you already own your home, we are happy to provide a no-cost mortgage review to help you to determine if refinancing may be in your best interest. Please contact me at 410-960-2061.