Down Payments Getting Easier

By: Duane Devalle

Buying a home is easier these days, largely because of relaxed requirements by lenders. Putting down 20% of the purchase price is no longer the standard.

Requirements where down payment money comes from has also broadened. Be prepared to provide proper and adequate documentation of its source.

Down payment money can come from the following:

Checking, Savings and Money Market Accounts -Lenders deem borrowers less risky with money available in these types of accounts. The money is quickly accessible and shows the ability to pay back the loan.

Stocks, Bonds and Mutual Funds -The selling of these assets to obtain cash is an acceptable source for a down payment. You will need to produce documentation of the transactions involved. When depositing the funds into savings or checking accounts, keep the deposit receipts. The lender will likely request that documentation.

Gifts -Monetary gifts from family members are acceptable. Family includes siblings. parents, grandparents and aunts and uncles. A gift letter explaining the relationship, amount and, in some cases, the source of the money needs to be signed by both the borrower and the one providing the gift.

Retirement Accounts -Be careful with this one. Research everything involving the cashing out of all or part of your retirement account or 401 K.

Tax penalties may be severe. If you borrow against your account, the lender will likely consider it additional debt added to your debt-to-income-ratio affecting how much of a loan you qualify for. Regardless, a retirement account such as a 401 K is another indication of your financial stability and ability to save.

Sale of Personal Property -Profit from the sale of personal property such as jewelry or an automobile is acceptable. Consult your lender as to what documentation is required. Proof of ownership and sale is likely. Payment by check rather than cash will provide further proof of the sale.

Employee Assistance -To foster employee loyalty and stability some employers aid their employees with locating and acquiring housing. Under such circumstances the lender will require all details of the arrangement.

Secured Loans -In some cases lenders are allowed to borrow money for a down payment so long as the loan is secured by an asset. You might, for example, seek a line of credit utilizing a second home which has the required level of equity. Again though, debt-to-income-ratios may be affected.  

Credit cards which are considered unsecured loans are in no way able to assist with generating funds for a down payment. A credit card cash advance, for example, is unacceptable.

Additional Lending Tips:

1. It may be in your best interest to seek a higher loan-to-value mortgage. A growing number of lenders have zero-down products that finance the full purchase price. In some instances, even closing costs are covered. Also consider an 80/20 first and second mortgage. The first mortgage covers 80 percent of the purchase price, while the second covers the remaining 20 percent.

2. Keep in mind that if greater than 80 percent is borrowed, you will likely pay Private Mortgage Insurance (PMI). Once you've built 20 percent equity, inform your lender to have the PMI payments canceled.

3. Interest-only mortgages are for those wishing lower monthly payments. These loans allow you to pay principal when you desire. Discipline is important.

Lenders are developing new products to help borrowers obtain a home. Be certain to fully understand all details regarding their products. Taking the time to "shop" for the right mortgage will be well worth the time and effort. A good lender should be able to answer your questions knowledgeably and clearly discuss what will be required of you.

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