Exploring Down Payment Options in Today’s Housing Market
Article By: Wendy Hollenbeck
Is the lack of a down payment preventing you from buying a home? The current housing market is a challenge enough without worrying about how you will pay for your down payment. There are different ways to obtain down payment funds for your dream home. With so many different loan programs with differing criteria, it is important to evaluate with your trusted lender what will work best for you in advance, so you have ample time to prepare.
The most common form of down payment is money that you have saved. This can include funds in your deposit accounts, as well as liquidated funds from your investment or retirement accounts. Your lender can help you determine the amount of downpayment and then set expectations for the future homebuying process, establish a timeline, and help you create a goal to start setting aside money.
Another approach is to use the equity from your current house when it is sold towards your down payment. You can also use your current home equity loan towards a new home purchase if you plan to retain your current home.
A valuable resource for additional sources of down payment is your city or county to see if there are any housing grants you qualify for.
The Downpayment Plus program through Federal Home Loan Bank of Chicago grants buyers up to $10,000 toward down payment and closing costs. Participating lenders can go through the specifics and qualifications with potential applicants. To qualify for the grant, the buyer must contribute at least $1,000 of their own funds to the purchase of the home. There are income restrictions based on household size and property location. Each month, a portion of the grant will be forgiven over a five-year period. Complete requirements can be found at www.fhlbc.com.
Another option is finding a loan with a low or no down payment requirement. These loans are usually government-backed loans, such as Federal Housing Administration (FHA), United States Department of Agriculture (USDA), and Veterans Affairs (VA) Loans. Your lender can review the eligibility requirements for these with you as well.
You can receive a gift for your downpayment, but there are specific rules. The gift can come in the form of funds deposited into your account or a gift of equity. Depending on the loan program, it may be a requirement that the gift comes from a related person or someone with family-like ties.
Overall, there are multiple possibilities for gathering your down payment funds with differing requirements for each. For more specific information on programs and down payment requirements, please meet with a trusted mortgage lender to discuss your individualized options.