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How will you afford a 20% down payment on a new home?

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Are you in the market to buy a home? Most conventional lenders will expect a down payment of at least 20%. You can free yourself of this payment by looking for alternative loan avenues. Do your research. Broaden your home buying options by diverting some or all of the expected down payment.

FHA Loans

For starters, if you are new to the home buying world, you may qualify for loan through the Federal Housing Administration (FHA). This gives lower income Americans an opportunity to buy a home with as little as 3.5% down. Borrowers cannot spend more than 31 percent of their gross monthly income on the down payment. The resulting drawback to a lowered down payment is that the FHA loan will require the homeowner to pay for mortgage insurance instead. It is still a great opportunity for first time home owners with smaller incomes.

City and Federal Program Assistance

Some cities are looking to revitalize their area after being hit by natural disasters or economic fallout. If a homeowner knows how to look, there are select programs targeting certain areas which may help fund your down payment. These programs offer homebuyers money as an incentive to purchase in the qualified area. This money will not come to you; you will have to find it. Talk to your Real Estate Agent and see what programs are available or help to point you in the direction of a knowledgeable mortgage broker.

Veteran Affairs (VA) Loan

Military veterans and others who qualify will have the opportunity to buy a home with zero money down. Buying a new home or refinancing an old can bring very low interest rates for a VA loan if the applicant has a Certificate of Eligibility, good credit score and sufficient income. There is no mortgage insurance requirement and the closing costs and fees are regulated by the government.

U.S. Department of Agriculture (USDA) Loan

Low-income qualifying borrowers will benefit from low down payment costs for homes in rural areas with a USDA Loan. The buyer’s income may not be more than 115% of the median income for the purchasing area. Mortgage insurance is a necessary cost to the buyer. Loan amounts vary depending on location of home being purchased, if the area is eligible for the assistance program and on the income of the family wanting to buy. The program wants to encourage home ownership in certain areas of the U.S.

You don’t qualify for one of these programs? Do what you can to get that 20% at a faster rate.

- Have relatives who can afford to ‘gift’ up to $14,000 per recipient? If you are married and are receiving money from one set of parents, each person could receive $28,000 without having to pay a gift tax. That is $56,000 towards the purchase of a new home.

-You can borrow up to $10,000 from a Roth IRA without having to pay penalties. It helps fund a down payment and save money in your savings for emergencies or upkeep costs.

-Take money from your 401K to help make a down payment. Discuss this option with your financial adviser beforehand.

-Start saving now. Focus on building the account to support a down payment. If you give the savings account a catchy name, it might help drive you to achieve the goal quicker.

Make smart decisions based on professional advice to make home buying an affordable and enjoyable next step in life.

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