You're anxious to purchase your first home, and with your current income, you could afford the monthly payments. The only thing keeping you from owning a home is the lack of a down payment.
You can't borrow your down payment from a bank. The purpose of a down payment is to ensure that the lender can recoup their administrative costs should you default. Think of a down payment as the instant equity in your new home.
There are other sources from which you can “finance” your down payment.
One of the more common ways to obtain funds for a down payment is to borrow from your family. If it's a gift, great! If you're borrowing, draw up a contract specifying terms. This alleviates the potential for misunderstandings.
If family is unable to assist you, there are assistance programs available. There are government grants for first time homebuyers at local, state, and national levels.
There are also non-profit organizations such as the Nehemiah Program and Ameridream that provide assistance through charitable and reinvestment processes.
As of this writing, these kinds of programs may lose their ability to assist homebuyers, due to a ruling from the Housing and Urban Development agency, otherwise known as HUD. Before committing to any agreement with either a government or charitable organization, research it thoroughly.
It is feasible, with a moderate to good income, to use a rent-to-own option to purchase your home. The seller is essentially your landlord. He or she holds the mortgage on the property, but through agreement, a portion of your monthly payment is held in a separate account, an escrow. After an agreed upon time period, on average five years, those monies are used as down payment and the home is sold to you, the renter.
Before entering into this kind of arrangement, consult with an attorney. The cost is well worth it. Unfortunately, this arrangement does invite unscrupulous people to set up scams. Be certain you, as the renter, receive regular statements from the escrow account, and that the arrangement is handled through a reputable bank or lending institution.
There are no-down-payment types of loans you can use to purchase your home. These are offered by lending organizations. A lending institution will “loan” you the down payment by creating a second mortgage on the property. However, this second mortgage requires no payments, and is forgiven after a certain number of years.
Be aware, your monthly payments will be higher without that instant equity, and most likely, you will be paying a premium interest rate.
The Federal Housing Administration (FHA) also offers low down payment programs. Because it is a government agency, you are essentially borrowing from a government fund, rather than a private institution.
A seller may also offer financing when selling his or her home. Under this agreement, you are borrowing directly from the seller. Like the rent-to-own program, you make monthly payments to the seller, except ownership of the home has been transferred to you.
The seller will expect to make more profit in this kind of sale. After all, he or she is not getting an immediate return on the sale of their home, and the cost of that delay will be built into your monthly payment.
Owning your own home is achievable, even if you don't have a sizeable amount for a down payment. Take the time to explore the various options available to you, and you're sure to find an opportunity for financing that suits your needs.
