If you’re a first-time home buyer, buying a home can be nerve-racking. Here are some mortgage down payment tips to help you navigate the process, save money, and avoid mistakes.
It’s common to put 20% down. Many lenders, however, now permit much less. There are also first-time home buyer programs allow as little as 3% down. Putting down less than 20% can mean paying higher costs and needing private mortgage insurance.
However, even a small down payment can still be rather large. A 5% down payment on a $200,000 home, for example, is $10,000. Play around with a down payment calculator to help you find a goal amount.
A couple of tips for saving up for a down payment are:
Another way to go might be to get help from family members. It takes documentation to satisfy a mortgage lender’s requirements when you receive a gift toward a mortgage down payment. The donors will have to verify in writing that they:
This will require them to provide bank statements as proof and a letter confirming that the donation is a gift, not a loan.
You might be tempted to tap a portion of your retirement to help with the mortgage down payment if you have a retirement plan. Employer-sponsored 401(k) plans normally allow penalty-free hardship withdrawals or loans. You will have to pay income taxes and a 10% penalty on the withdrawal, however, if you’re under 59½. If you lose your job, loans can trigger:
IRA withdrawals are allowed, up to $10,000, for home purchases. If you’ve had an account for at least five years, Roth withdrawals are tax-free and without penalty. You will trigger income taxes if you tap a traditional IRA.
There are plenty of mortgage options out there for you. Each of them has their own combination of pros and cons. Here are some resources if you’re struggling to come up with a mortgage down payment:
The amount you put down will affect your monthly mortgage payment and interest rate. Go for a 30-year fixed mortgage if you want the smallest mortgage payment possible. You can get a lower interest rate with a 20-year or 15-year fixed loan if you can afford larger monthly payments. Use a calculator to figure out if a 15-year or a 30-year fixed mortgage is a better fit for you. You can even look into getting an adjustable-rate mortgage, which is riskier. It does guarantee a low-interest rate for the first few years of your mortgage, though.
Many states offer assistance programs, in addition to federal programs, for first-time home buyers with perks such as:
Your county might even have some first-time home buyer programs.
To learn more about saving for a mortgage down payment, give us a call. We’d love to help you with resources to qualify for your own home.