Alternatives for Large Down Payments - What's Available?

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Alternatives for Large Down Payments - What's Available?

Are you required to make a  large down payment when purchasing a home? In many instances, the answer is no. You will find many different programs available that offer low down payment options in addition to allowing alternatives to funding that lower down payment. Some financial professionals may advise you to make a higher percent down payment for some generally sound reasons; however, if you cannot do that, you can still own a home if you qualify for certain programs.

In addition, you may benefit from making a smaller down payment. Freddie Mac and Fannie Mae have several options for qualified home buyers that have low down payment requirements. The following are programs from the two companies that may be able to help you:

  • HomeReady allows a non-borrowing member of the household to contribute money towards qualifying income.
  • You may also include roommate rental income or granny flat rental income towards the household income to qualify for the Home Possible Advantage program.
  • Fannie Mae offers Conventional 97 with a low down payment mortgage with no first-time buyer requirement or no income limits.

You may also be able to take advantage of down payment assistance (DPA) plans, which are becoming increasingly popular. Approved non-profits and some government-run plans can offer you no-interest loans or monetary gifts to help support homeownership in selected neighborhoods. According to a study by RealtyTrac, approximately 90 percent of all single-family homes in the United States may be eligible for some type of DPA. The major loan types listed above let you apply DPA funding towards a down payment. In some cases, you may be able to apply DPA funds towards some closing costs as well.

Three Reasons Why It May Be Better Not to Put a Large Downpayment Down

  • You will have more cash available, and this will help protect you in circumstances such as a job loss or other unfortunate financial event. If you put all of your liquid assets into a large down payment, you will have no buffer against difficult times.
  • You may be able to purchase a home sooner. Home prices are increasing now. If you wait to put together a 20 percent down payment, you may spend more on the eventual purchase of a home.
  • You may be able to invest your cash in other areas. You could use your 401k towards a down payment, but it is most likely better to keep your retirement funds intact. Withdrawing from your investments can limit the compound interest you would earn, and that can make retirement difficult.

If you are struggling to come up with enough cash to make a large down payment, you may still be able to become a homeowner. Your ultimate dream with the above programs may just come true! Contact us at to find out more.

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