Alternatives to Down Payment

If you don’t have a down payment to buy a home, there may be other options available to you. Lenders offer an unprecedented range of loans with 100 percent (or sometimes more) financing options with very attractive rates and flexible credit and income guidelines. Thanks to these programs, the need to come up with a hefty down payment is no longer such an issue. Still, even 100 percent financing requires some financial commitment on the part of the borrower, like covering closing costs, the cost of an appraisal, and a home inspection.
Home buyers can also use ‘‘gift’’ money for down payments—something that was not allowed just a few years ago. While some lenders may view this attempt to help (by, say, a parent) as a signal of the borrower’s indebtedness, it is becoming a more acceptable way of obtaining the funds necessary to obtain a loan. Lenders have different guidelines for accepting gift funds of less than 20 percent of the home’s purchase price, so inquire before taking this route.
If coming up with a down payment is a sticky point for you, a mortgage broker or lender can point you in the right direction, particularly if you fall into one of these categories:
❑ You have a strong source of income, but not much savings.
❑ You prefer to keep your assets in higher-yielding investments.
❑ You have low-to-moderate income and minimal cash reserves.
❑ You are a first-time home buyer with high rent costs that eat up
much of your cash.
❑ You are a move-up home buyer with minimal cash reserves.

What are my down-payment options?

Generally, the down-payment requirements start at 3 percent of the purchase price and increase from there, depending on the price of the home and your own ability to come up with the cash. There are also a number of first-time homebuyer programs (designed to help buyers who haven’t purchased or owned a home within the last three years) that require no down payment, as well as ‘‘gift’’ down-payment programs available from organizations like Nehemiah and Ameridream. When calculating your down-payment needs, don’t neglect to factor any out-of-pocket closing costs (which can’t be folded into your mortgage) into your up-front expenses.
If you’re a first-time home buyer, saving up for a down payment can be a daunting task. In fact, it’s one of the biggest obstacles to home ownership in this country, since the average mortgage payment on a first-time or starter home isn’t much higher than a rental payment anyway. The good news is that lenders realize this and have made your options both flexible and extensive when it comes to offering mortgage programs that weren’t available a few years ago.

How do I improve my credit score?

Because most creditors only report to the bureaus once a month, improving a credit score doesn’t happen overnight. However, there are a few steps you can take right now to start cleaning up your credit blemishes. Here they are:

• Pay your bills on time. Late payments and collections can have a serious impact on your score.
• Do not apply for credit frequently. Having a large number of ‘‘inquiries’’ on your credit report can worsen your score because it looks like you’re being turned down for credit and ‘‘shopping around.’’
• Reduce your credit card balances. If you are ‘‘maxed out’’ on your credit cards, this will affect your credit score negatively.
• If you do have any ‘‘unpaid’’ debt that you now have the ability to pay off, either do so, or try to set up a ‘‘payment plan’’ or settlement option with the debtor.If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score. (Even if you don’t like charging purchases, obtain a low-limit credit card, use it every month, and pay off the balance within thirty days.)
• When you do get your mortgage, be sure to always pay it on time. Late mortgage payments are one of the most significant blemishes that you can have on your report.