Guest Author - Rosemary Rugnetta

Going back just about one year ago, many people were buying homes with no down payment. 100% was everywhere. Today, this is fast becoming a thing of the past. Let’s just say that it is, right now, something not easy to come by.

So what other options are available to the potential home buyer today? Anyone who is thinking of purchasing a home should be trying to save money for that initial down payment. Although, in all reality, saving 20% of the purchase price of a home is quite a lot of money to come by in these times. By the time that amount of money is accumulated, the price of housing is likely to rise, therefore, putting you out of the playing field.

The first thing to know in regards to your down payment is that you cannot borrow it as that will create another debt to be calculated against you by the lender. All down payments must be documented by the lender. When a lender examines your bank account statements and comes across a large deposit, they will definitely be calling you to find out what it is and where it came from. This is done with deposits as low as $1000. Due to the patriot act and suspicious activities laws in place today, any large deposits to your account that are not regular deposits, such as direct deposit from your employer’s payroll, will be questioned. This includes any cash deposits that were made. It is at that time that you will have to send to them further documentation to show where the money came from. If this money was borrowed and is in essence another loan, that will be added to your debt and calculated in your debt to income ratios. It can very well put those numbers over the edge and disqualify you for the loan.

If you have been able to save 5% of the purchase price and you have good credit, you should be able to apply for a conventional loan. Keep in mind that you will have to pay private mortgage insurance until the loan to value is below 80%. The other option available to you is to apply for a Federal Housing Administration loan, otherwise known as FHA. With this type of loan your down payment requirement is 3%. There is an upfront fee added to your loan and monthly PMI but the interest rates on an FHA loan are usually lower than a regular conventional loan. In today’s market, FHA loans are becoming very popular again.

The best thing to do when approaching a lender is to request them to give you both options to look at so that you can see the difference. They can easily run Good Faith Estimates on using both programs so that you can compare the interest rates, upfront costs and monthly mortgage payment. It can be a big help in making your decision.

If you have any questions or comments, please stop by the Home Ownership forum and let us know.