Home Loan In U.S: Methods of Getting Better Deal on a Loan (Method 2)

2.Cutting Costs with Your Down Payment or Assistance Programs

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1.Save as much as your budget allows each month. The less money you have upfront to pay toward your home, the more interest you will end up paying though out the life of the loan. Depending on your lender and the type of loan you choose, your required down payment can range from 2.5% to 20% of the cost of the home.

Once you have budgeted how much money you can save each month, automatically put money from each paycheck into a savings account.
Make a monetary goal of how much you want to put toward a down payment. This can be difficult if you don’t have a specific home in mind, but you could, for example, tell yourself that you are going to look in a certain price range of homes, and that will have at least 15% of that amount saved for your down payment.^[1]

2.Avoid mortgage insurance. Private mortgage insurance (PMI) is an insurance policy that protects lenders from the risk of default and foreclosure, and allows buyers who cannot (or choose not to) make a significant down payment to obtain mortgage financing at affordable rates. There are two ways to avoid paying PMI:

Make a down payment that is at least 20% of the purchase price of the home. This is the simplest way to avoid paying PMI.
Consider a piggyback mortgage. In this situation, a second mortgage or home equity loan is taken out at the same time as the first mortgage. For example, in an “80-10-10” piggyback mortgage, 80% of the purchase price is covered by the first mortgage, 10% is covered by the second loan, and the final 10% is covered by your down payment. This lowers the loan-to-value (LTV) of the first mortgage to under 80%, eliminating the need for PMI.^[2]

3.Look into special loan programs. If you are having a hard time saving 20%, don’t despair. There are special loan programs that may be helpful if you are unable to save a lot for your down payment. Just keep in mind that while the programs may be affordable in the short term, in the long term you may be paying more for your loan because of more monthly payments, which means more interest. Be sure to read the fine print. Here are a few examples of special home loan programs:

FHA loans. Federal Housing Administration (FHA) loans often require lower down payments, and they are open to most U.S. residents. They are popular with first-time homebuyers because they can require as little as 3.5% down and are more forgiving of low credit scores.^[3]
VA loans. A loan through the VA (Veterans Affairs) is an option if you or your spouse served in the military. These loans require lower (or no) down payments and can offer great protection if you fall behind on your payments.^[4]
USDA loans. If you live in a rural area, you may qualify for a loan offered by the U.S. Department of Agriculture. This loan program began in 1991 as an incentive to boost home ownership in rural areas. Like VA loans, they can offer low down payments and help out if you fall behind on payments.^[5]

4.Check out other homebuyers’ assistance programs. There are other assistance programs for first-time homebuyers, and programs like the “Good Neighbor Next Door” program for teachers, firefighters and law-enforcement officers.

These programs are listed on the U.S. Department of Housing and Urban Development (HUD) website. The programs differ depending on the state where you live, but most offer assistance and discounts on loans for certain qualified buyers.^[6]

Sources and Citations

Home Loan In U.S

Sunday, October 18, 2015

Methods of Getting Better Deal on a Loan (Method 2)

2.Cutting Costs with Your Down Payment or Assistance Programs

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