Building Your Down Payment

Lots of borrowers can qualify for a loan, but they can't afford a large down payment. Below are a few methods that will help you put together your down payment

Slash your budget and build up savings. Scrutinize the budget to discover ways you can cut expenses to go toward your down payment. You also could enroll in an automatic savings plan to have a portion of your payroll automatically moved into savings. You might look into some big expenses in your spending history that you can live without, or reduce, at least temporarily. For example, you might move into less expensive housing, or skip a family vacation.

Work more and sell items you don't need. Maybe you can get an additional job and build up your earnings. You can also get serious about the possessions you actually need and the items you may be able to sell. Multiple small items can add up to a nice sum at a garage or tag sale. Also, you might want to look into selling any investments you hold.

Borrow your down payment from a retirement plan. Check the parameters of your particular plan. Many people get down payment money by withdrawing from their IRAs or taking funds out of 401(k) plans. Make sure you know about any penalties, the effect this could have on your taxes, and repayment obligation.

Ask for help from family members. Many buyers sometimes receive down payment assistance from thoughtful family members who may be eager to help them get into their own home. Your family members may be inclined to help you reach the milestone of buying your first home.

Learn about housing finance agencies. These types of agencies provide special mortgage programs to moderate and low income borrowers, buyers with an interest in remodeling a residence within a particular part of the city, and additional specific types of buyers as defined by each finance agency. With the help of a housing finance agency, you probably will get a below market interest rate, down payment help and other incentives. Housing finance agencies may assist eligible buyers with a lower rate of interest, help with your down payment, and provide other benefits. The central purpose of not-for-profit housing finance agencies is to promote home ownership in targeted areas.

Learn about low-down and no-down mortgage loans.

• FHA mortgages

  The Federal Housing Administration (FHA), a part of the U.S. Department of Housing and Urban Development (HUD), plays an important part in helping low to moderate-income Americans get mortgage loans. Part of the U.S. Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) aids homebuyers who wish to get mortgage loans. FHA provides mortgage insurance to private lenders, enabling homebuyers who might not be eligible for a typical loan, to obtain a mortgage. Down payment amounts for FHA mortgages are below those of conventional mortgage loans, although these loans have current rates of interest. Closing costs can be included in the mortgage, and your down payment may be as low as 3% of the total amount.

• VA mortgage loans

  VA loans are backed by the Department of Veterans Affairs. Veterens and service people can get a VA loan, which usually offers a reasonable fixed rate of interest, no down payment, and limited closing costs. Although the loans don't originate from the VA, the office certifies borrowers by issuing eligibility certificates.

• Piggy-back loans

  You may finance your down payment with a second mortgage that closes with the first. Most of the time, the first mortgage is for 80% of the cost of the home and the "piggyback" funds 10%. The borrower pays the remaining 10%, rather than putting the usual 20% down payment.

• Carry-Back loans

  In a "carry back" agreement, the seller commits to loan you part of his own equity to help you get your down payment funds. You would finance the majority of the purchase price with a traditional mortgage lender and finance the remaining amount with the seller. Generally, this form of second mortgage has a higher rate of interest.