PUTTING TOGETHER THE DOWN PAYMENT
| Any effort put toward purchasing your home is well worth it. Not only will you gain an improved life-style, but also home ownership still offers one of the best tax advantages available today. It will also increase your personal net worth. A person who rents for 10 years could put from $50,000 to $100,000 in their landlord's pocket instead of their own. The following are some of the options available for securing a down payment in order to purchase a home: | If you or your spouse is a veteran, consider looking into loans guaranteed by the Veterans Administration (VA). Except for its graduated payment and growing-equity mortgages (GPMs and GEMs), loans guaranteed by the VA require no down payment and the seller may pay your closing costs. You can get a VA loan for up to $184,000 and the interest rate is sometimes less than that of conventional loans. |
| QUALIFYING RATIOS Most lenders won't let you borrow an amount that would require more than 28% of your gross income for the monthly mortgage payment. However, most do allow your total debt to reach up to 36% of your gross income. You do not have to be debt free to qualify for a mortgage as long as your debt is within a certain range. Your long-term debt (credit card balances and student or auto loans, for example) should be within 8% of your gross monthly income. If it is over that limit, many lenders won't even consider lending to you, regardless of the amount of money you have for a down payment. | Finally, if none of these options are feasible, is it possible to turn to someone you know for the down payment? Parents, other relatives, or friends can present you with an outright gift of a down payment. Remember that a gift of the down payment is better for you because a lender will count a loan for the down payment as part of your long-term debt, which can either lower the amount of the loan you will qualify for or disqualify you. Parents can give children up to $40,000 a year without paying federal gift taxes. However, if the gifted amount is less than 20% of the purchase price, borrowers must contribute 5% (of the purchase price) of their own funds |
| FINDING THE DOWN PAYMENT First, look into loans insured by the Federal Housing Administration (FHA). With a loan insured by the FHA, only 5% down payment is required. Currently, however, FHA insurance is available only on loans of less than $118,600. | Do you belong to a credit union from which you can borrow? Any loan from a credit union would have to be on a secured basis (i.e., auto). Or can you borrow from your pension plan at work, or a profit sharing plan, if you're vested? For example, you can typically borrow from a 401(k) plan through work and you usually have ten years to repay the loan. Often, the interest rate for the loan is tied to short-term Treasury notes or is within two points of the prime lending rate. |
| Private mortgage insurance (PMI) is another option that can help you buy a home with as little as 5% or 10% down. PMI covers the difference between you down payment and the amount of down payment the lender typically requires on the same loan. As the name implies, PMI is obtained through a private company. First-year premiums are usually between .35% and 1.65% of the total loan amount and, depending on policy requirements, you must pay the premium either in advance or monthly. So if your loan amount is $100,000, you would pay between $350 and $1,650 per month the first year. As soon as your equity in your home reaches 20%, you may not be required to have PMI any longer. This is the option of the lender. | SPECIAL RULES FOR IRA's Although you cannot borrow against the IRA account, you can actually withdraw that money outright. Keep in mind that when you withdraw from your IRA, you must pay a 10% non-tax deductible penalty on all funds withdrawn. You must also add that amount to your taxable income on your annual tax return and pay taxes on it as you would any other income. So use caution when you're considering an IRA withdrawal. Weigh the cost of the tax penalties carefully. |
Show Low Office Randolph Tenney, Broker 60 South White Mountain Rd. Show Low, Arizona 85901 Office: (928) 532-1111 Toll Free: (800) 237-6230 Email: info@gmactenney.com |
Pinetop/Lakeside Office Mark Rodenborn, Branch Manager 1413 E. White Mountain Blvd. Pinetop, Arizona 85935 Office: (928) 367-3100 Toll Free: (800) 422-6812 Email: info@gmactenney.com |
Snowflake/Taylor Office Troy Goodwin, Manager 1300 S. Main St. Snowflake, Arizona 85937 Office: (928) 536-5600 Toll Free: (866) 297-0143 Email: info@gmactenney.com |
Holbrook Office Yvonne Larson, Branch Manager 1100 W. Hopi Dr. Holbrook, Arizona 86025 Office: (928) 241-1229 Email: info@gmactenney.com |