Saving for a down payment can be one of the biggest barriers to homeownership. But many of today's homebuyers overestimate the size of the down payment they need. The average down payment is between 5% and 10% — not 20%, as a lot of people assume. With options like Freddie Mac's 3% down Home Possible mortgage, Fannie Mae’s 3% Home Ready mortgage, and the Federal Housing Authority's 3.5% down, qualified borrowers are able to make a down payment as little as $6,000 for a $200,000 home. Down payment assistance programs can help you bridge the cash gap, and help you save on your down payment and closing costs. We recommend speaking to a loan officer at your lending institution to get pre-qualified for one of the many programs available, prior to looking for a home. Many state, county and city governments provide financial assistance for people in their communities who are well-qualified and ready for homeownership.
What are Closing Costs and How Can I Pay Them?
Typically, homebuyers will pay between about 2% to 5% of the purchase price of their home in closing costs, or between $4,000 and $10,000 on a $200,000 home. Closing costs will vary depending on the loan size, taxes, insurance, lender and third-party fees. Again, work with a professional loan officer and real estate agent to help guide you through the homebuying process. Realtors can negotiate for the seller to contribute to closing costs, typically from 3-6% of the purchase price, depending on the loan program.
How should you plan to pay for a down payment?
- Use your tax refund
- Save up money by living with relatives temporarily
- Cut back on unnecessary expenses
- Find a second, part-time job to save money
- Get rid of high-interest rate credit cards, and make sure you keep your credit clean for the best rates and programs
- Get a monetary gift for your down payment from your parents or other relatives
- Check to see if you can withdraw from your 401k or IRA for first-time homebuyers
Don’t forget to contact your lender for guidance. They will let you know if you are qualified to purchase a new home, and what programs are available to you. If you are not quite ready, they can recommend what you can do to get there.