Down-Payment Got You Down?

For many Americans, "coming up" with a down-payment for their first home purchase can be a major roadblock -- and quite often the reason for renting, rather than owning, a home. A "down-payment" is the difference between the home's purchase price and its mortgage amount. This percentage of the sale price must be paid up-front and can vary by lender, location, and loan program. A higher down-payment generally translates into lower loan interest rate requirements. Typically, a down-payment comes from personal cash savings, but it can also be a gift that is not to be repaid, or a borrowed amount secured by assets. While conventional loan down-payments may be close to 5% of the sale price, government loans typically have lower down-payment requirements. This allows potential homebuyers who normally cannot meet down-payment requirements an opportunity to qualify for a mortgage. Keep in mind that down-payments that are less than 20% of the sale price typically require mortgage insurance payments.

Down-Payment Assistance Programs

Fortunately, there are programs and organizations that can help you with your down-payment requirements: Government Loan Programs - Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) may offer assistance in paying your up-front cash requirements. These programs can significantly reduce your down-payment requirements. You may also want to contact your local Department of Housing and Urban Development (HUD) Community Builders to find out what local down-payment assistance programs are available. State Housing Authorities - State agencies may offer down-payment assistance programs in your state.  Rural development loans are also a great option for qualifying areas.

Private Mortgage Insurance - Private insurance companies that offer you the opportunity to finance some of your down-payment requirements. This allows lenders to accept lower down-payments than they would normally allow.