Building Your Down Payment

Lots of borrowers qualify for various loan programs, but they don't have much for a down payment. Want to buy a new home, but aren't sure how you should get together a down payment?

Reduce expenses and save. Turn your budget inside out to find ways you can cut expenses to save for your down payment. You could also try enrolling in an automatic savings plan to have a portion of your payroll automatically deposited into a savings account. Some practical ways to build up funds include moving into less expensive housing, and staying home for your vacation for a year or two.

Sell things you don't really need and find a second job. Perhaps you can find a second job and build up your earnings. You can also get creative about the things you can put up for sale. Multiple small items might add up to a nice sum at a garage or tag sale. Also, you might want to think about selling any investments you own.

Borrow from your retirement funds. Explore the specifics of your individual plan. Some homebuyers get down payment money from withdrawing from their IRAs or borrowing from their 401(k) plans. Make sure to ask your plan representative about the tax consequences, repayment terms, and any penalties for withdrawing early.

Request a gift from your family. Many homebuyers are sometimes lucky enough to receive down payment assistance from gracious parents and other family members who are willing to help them get into their first home. Your family members may be pleased at the chance to help you reach the goal of buying your first home.

Learn about housing finance agencies. Provisional loan programs are provided to buyers in specific circumstances, like low income buyers or people planning to renovating houses in a certain neighborhood, among others. With the help of a housing finance agency, you may get a below market interest rate, down payment assistance and other benefits. Housing finance agencies may assist you with a reduced rate of interest, get you your down payment, and offer other benefits. These non-profit agencies exist to promote home ownership in particular areas.

Find out about low-down and no-down mortgages.

• Federal Housing Administration (FHA) loans

  The Federal Housing Administration (FHA), which functions as part of the U.S. Department of Housing and Urban Development (HUD), plays a significant role in assisting low and moderate-income individuals qualify for mortgages. Part of the U.S. Department of Housing and Urban Development(HUD), FHA (Federal Housing Administration) aids individuals in getting mortgage loans. FHA assists first-time buyers and others who would not be able to qualify for a conventional mortgage on their own, by offering mortgage insurance to the private lenders. Down payment requirements for FHA loans are smaller than those for traditional mortgages, although these loans have current rates of interest. The required down payment can go as low as 3 percent and the closing costs could be financed in the mortgage.

• VA loans

  Guaranteed by the Department of Veterans Affairs, a VA loan is offered to service people and veterans. This special loan does not require a down payment, has limited closing costs, and offers a competitive rate of interest. Although the mortgages aren't actually financed by the VA, the office certifies borrowers by issuing eligibility certificates.

• Piggy-back loans

  You may finance your down payment using a second mortgage that closes along with the first. Most of the time, the piggyback loan takes care of 10 percent of the home's amount, and the first mortgage covers 80 percent. The homebuyer pays the remaining 10%, rather than putting the typical 20% down payment.

• Carry-Back loans

  In the option of a seller "carrying back a second mortgage," the seller loans you part of his or her home equity. The buyer finances most of the purchase price through a traditional mortgage program and borrows the remainder from the seller. Usually this form of second mortgage has a higher rate of interest.

The satisfaction will be the same, no matter which approach you use to get together your down payment. Your brand new home will be your reward!