Homebuyers seek options to amass a down payment
LOS ANGELES - Saving up for a down payment is the biggest hurdle for many would-be homebuyers, particularly those looking to make the leap from renting to owning.
More than two-thirds of renters consider setting aside money for a down payment the No. 1 obstacle to buying a home, according to a recent survey by real estate data provider Zillow. That edged out other concerns, including job security and a thin supply of homes on the market.
While there are home loans that require as little as 3 percent down, rising home prices, especially in expensive coastal states, keep driving up the amount of money buyers need to come up with for a down payment.
Here are some tips to consider when working toward that down payment on a home:
Start soon
Begin saving now. Renters may want to calculate what their extra monthly costs would be as a homeowner and then set aside that amount, minus rent and utilities. This accomplishes two goals: Saving money for a down payment and getting you accustomed to the financial constraints of living with the costs of homeownership.
Another strategy that may help: open a separate savings account just for your down payment. That will help lessen the temptation of using the funds for something else.
You’ll also have to set aside money for closing costs, which can run into the hundreds or thousands of dollars.
Weigh loan options
said Greg McBride, chief financial analyst at Bankrate.com. “You can get into a house with a low down payment, but you’re going to have to come up with the money for closing costs.”
Lenders offer loans backed by government mortgage companies Fannie Mae and Freddie Mac that require only a 3 percent down payment. Borrowers can ask to have their PMI waived once the equity in their home reaches 20 percent.
Borrowers with less-than-sterling credit may have a better shot qualifying for loans backed by the Federal Housing Administration. The FHA’s program requires 3.5 percent down, but borrowers have to refinance once their equity grows above 20 percent in order to get out of paying PMI. Until then, PMI is tax-deductible.
Buyers may not need to save for a down payment at all if they are U.S. military veterans, servicemembers or residents of certain rural areas. The Department of Veterans Affairs and the U.S. Department of Agriculture have zero-down-payment loan programs for qualified borrowers.
Other options