Funding a Down Payment for Mortgage

It is very rare for lenders today to allow would be property owners to purchase a property without any down payment. Because of the sub-prime mortgage crisis, they now steer clear from this form of transaction since they are increasing their risk especially if they are dealing with someone with bad credit rating.

Recession has even increased the restrictions in their screening process to the point that nearly half of those who are seeking mortgage assistance are being denied. If you don’t have any down payment for the property you want, better save up or seek sources of those funds.

But aside from increasing your chances of being approved for a mortgage through a down payment, there are additional advantages.

• Be on the aggressive side – today, consumers are going after the lenders. But if you have the down payment, you can compare rates and offers from different lenders.

• Your down payment is your equity – it’s an automatic equity against your property which means you can take out a loan based on your equity as soon as you complete your transaction.

• Lower interest rate – you can be sure that your interest rate will increase by as much as 2% if you do not provide any down payment. This could mean thousands of dollars more than the down payment which will be counted as payment on the principal loan.

Sources of Funds

A down payment for the property is never a problem if you have a good source of funds. But usually consumers can’t muster to fund the 20% down payment for the property. They would have to save for at least a year or two before they could come up with the amount.

Fortunately, there are other sources for the down payment funds that you can consider. The first source is from the government. The FHA (Federal Housing Authority) has programs that assist those who wanted to purchase a property that would limit their down payment to only 3% of the property value. The good thing about this transaction is that even though with the lower down payment, the new property owner will not experience an increase in interest rate.

Aside from federal assistance to purchase a property, there are also state and local housing programs that you can enjoy. Their terms and conditions should vary so it’s best to get in touch with them as soon as possible.

The downside of the available government programs is the strict screening process. Although there are thousands or even millions of families needing the assistance, this type of assistance can easily point out that you have a good source of income even though it’s just enough to support your family.

There are also companies that offer down payment assistance for mortgage. This is specifically geared for first time home buyers. Their assistance will help you purchase the property with almost no down payment since they will use the equity of the property you are about to pay. Think of it as an advanced equity loan so that you will be able to purchase the property without any down payment.

But this often criticized by the government. They even tried to stop this form of transaction legally since there is a very high chance that the person in this transaction will not be able to keep up with the payment. You may have the down payment but you end up with two loans. If you can’t keep up with the payment, you will lose your property. 

If you are considering this type of loan for a down payment, make sure that you have a good source of income in the coming years to easily fulfill your financial responsibility.