What to Expect When Buying With Little Money Down
First, if you’re buying a home with less money down, know that your mortgage payment will be higher than if you put more down. The three things that inflate a mortgage payment are: interest rate, larger loan size, and private mortgage insurance (PMI).
You should have monthly debts including credit cards, car loans, and any form of payment obligations, in relation to your income. Your income will need to be high enough to include the proposed mortgage payment for the purchase price you are seeking, as well as being able to cover your other debt payments.
The down payment percentages are important to know. Make no mistake, the mortgage company can work this calculation out for you very easily, or you can do it yourself. You can take the amount of money you have and divide that number by the purchase prices in your area to determine the exact dollar percentage.
No money down options
- The VA loan program allows for no-money-down, 100% financing, for U.S. military veterans only.
- The USDA loan program also allows for no-money-down, 100% financing, as long as you are purchasing a home in a rural area and you meet the USDA’s annual low-income thresholds.
Other Money Sources
Alternatively, gift monies can be used to purchase a home. Typically, lenders like gift monies to come from a blood relative, but check with your lender for specifics. Here are additional funds that can be used for the acquisition of a home, though they each come with their own individual downsides and may not be a good fit for you. Consider all of your options:
- Stocks, bonds, IRA and 401(k) monies can be pulled from these accounts to purchase a home, usually with special provisions.
- Gift money, as long as it can be documented in some form of a bank account can also be used, along with an executed gift letter.
- Selling of personal property — a boat or a motorcycle, for example, can be used for a down payment and/or closing costs — documented with a bill of sale and paper trailing of the funds.
- A security deposit refund on you current rental obligation can also be used, but needs to be planned for on the front end so as to properly communicate timeframe expectations with your landlord.
- Tax return refund.
Read this useful article if you are uneasy, to let you know that Down Payment Assistance is Still Available and watch this great video on Pros and Cons of Using Gift Money in a Home Purchase.