Banks will allow smaller down payments, but a larger down payment lowers your monthly mortgage payment (nice when money is tight) and reduces the interest you pay over the life of the mortgage. The goal is to own your home and have as much money as possible along the way.
Open a savings account just for a house down payment, so you are not tempted to use the money for another reason. If you are saving over an extended period of time put some money into CD’s as the interest rate is not great, but it is better than a money market account. You can purchase a CD for 6 months, a year or several years.
Dealerships use down payments generally as a way of adding extra profit to the sale of a car. That’s why they’re usually something that are flexible.
So let’s look at numbers. If you are making an offer of $200,000 to buy a house, you will need an initial $2,000 (minimum) in earnest money, $40,000 for a down payment at 20% and $6,000 in closing costs. That’s in-pocket money of $48,000. If you are making a purchase with FHA or HUD assistance, that amount can be as low as $14,000. By tapping into down payment assistance programs, you can lower this figure even more.
A great way to make your property more attractive to buyers is to offer owner financing. Forget granite counter tops. Money considerations take precedence over decor. If you have a good bit of equity in your home you may be able to find a buyer who can’t meet banker standards but can still pay for a home. Get a good down payment, check credit and charge enough interest to make the note into something you may be able to sell later.
Other than your credit they will also look at any kind of down payment you can make on the property and your current employment. They will look at both your income to see if they think you can afford your monthly payments, and how long you’ve been employed and at your current residence to see how stable you appear. Of course, if you have excellent credit (a score over 720), it’s likely these other factors will become a lot less important.
So what are credits and how does the rent money work towards the purchase of my home? To simply put it, credits are a portion of your rent that is saved and will be used as a portion of your down payment towards the purchase of the home you are currently in.
Suppose you find a home that needs a little work. Its market value will be around $200,000 after you clean it up. You buy it for $180,000, with $18,000 down. Your closing costs are $5,000, and cleaning costs $2,000. Mortgage payments, taxes, insurance and a water bill run about $1,500 per month, so holding costs for the first two months (Your target for selling the home) will be $3,000.
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