Down Payment For Your Home – The Free Mortgage Calculator

For a majority of homeowners, down payment for a home would mean at least 20 percent of the house’s purchase price as required by their mortgage.  However, with the recent changes in the housing market, lenders have modified the rules and have made it more enticing for people planning to have their own homes but do not exactly have the budget for one.  Thus, there are promotions or deals that allow as low as zero down payment for a house.  But then, these deals usually mean ‘hidden’ charges and fine print stipulations that homeowners should be wary of.  In order for them to get the best deals with current interest rates and mortgage insurance, a significant down payment should still be present in their mortgage. 

As mentioned earlier, there is what is commonly referred to as PMI, which stands for private mortgage insurance.  PMI is a cost that the prospective homeowner has to pay with the mortgage that aims to protect the lender in case the homeowner defaults on a payment.  For people who have taken advantage of a scheme with a very low down payment for a home mortgage, the lender does not have any assurance, since very little or no down payment has been given.  Thus, lenders charge PMI.  But for people who have given at least a 20 percent down payment or equity for their homes, lenders do not feel the need to charge the PMI, since they have a form of assurance in the down payment.

The issue with down payments is that even a 20 percent down payment can be a challenge for some people who dream of having a home.  For example, even for a house that has a $200,000 price tag, 20 percent of that will be $40,000, which is still a lofty sum for some people.  But then, as mentioned earlier as well, paying a down payment should be considered an investment as it will significantly lower interest rates and do away with other charges such as PMI. 

For people who are challenged to amass funds for a down payment for a home, there are some funding sources that may help.  For example, state housing authorities and the Federal Housing Administration have programs that assist families with low to moderate incomes, as well as those who are planning on buying a home for the first time.  There are also 401k and 403b plans that are usually for retirement that allow people to borrow funds from their account in case they want to purchase a home.  An account with IRA also entitles holders to some provisions that allow them to withdraw for home purchases if done for the first time.

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Real Estate Investing – Information and Understanding

Real estate investing is considered by most people to be a safe investment, since land is one commodity that rarely, if at all, devalues.  Moreover, if the location of the real estate to be invested in is prime or shows a lot of promise or potential for development, the investor’s money could multiply in time.  But then, aside from choosing a great location, it is also important for an investor to make sure that he or she is dealing with the right people.  These days, the real estate market has been attracting unscrupulous people that entice people, especially those who want to have their own real estate but are struggling, with their zero down payment schemes and other modus operandi.  The truth of the matter is, real estate brokerage is a challenging profession, and only a few people are qualified and licensed to deal with real estate.

For those who are serious about real estate investing, there are some factors that they need to have.  Of course, having the investment capital is important., as it is primarily the means to buy real estate.  If a prospective investor does not have it, at least he or she should have the means of getting some.  He or she just has to make sure that it would not make him or her be in serious financial trouble like being deep in debt.  Of course, when investing in real estate, just like any other undertaking, the person getting into it must have good knowledge of the market and the location where the prospective property will be bought.  As for the skills, the person needs to sharpen or develop his or her negotiating and management skills.  Moreover, he or she needs to know how to do repair work, or names of people who can do it for him or her.  Lastly, having an engineer, property inspector and a team of renovators should  come in handy.

But as mentioned earlier, the most important factor in  real estate investing is having capital.  Having one’s own house is one thing, but for people who want to buy several houses as a form of investment, a sizable amount of funding is necessary.  For example,  if an investor only has $250,000, he or she can buy a house for himself or herself.  However, if he or she has $500,000, he or she can buy two houses, one for himself or herself, and one to start the ball rolling with another house that can be rented out or sold, the proceeds of which can be used to buy another property. 

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Using Personal Loans To Your Advantage

I keep getting questions about personal loans because I reference them quite a bit to help in certain situations such as getting a personal loan to use as your down payment or to help with your credit score.

A personal loan is a loan with no attachment to it. A mortgage company has nothing to sell to get there money back so it’s the ultimate trustworthy type of loan. A car can be sold to get the car loan paid off and a mortgage can be foreclosed on and sold to get their money back as well.

If you’re buying a home and don’t have a down payment a personal loan is a great idea to get the down payment. Obviously you’ll be living in the home and mortgage lenders have very low down payment options for home buyers right now such as 3.50-4% down. That’s only $6,000 on $150,000. Yes I said, “Only”.

Use me free mortgage calculator to figure out the personal loan payment on $6,000 plus $2,500 closing costs over 13% interest over 5 years. Those are typical terms for a personal loan. The calculator says $193 per month for $8,500. Now you have your down payment and you only lost $193 worth of your monthly borrowing power.

Borrowing power = 40% of gross income (amount before taxes)

Subtract all loans you currently have including your new personal loan. That number is the amount you can afford per month for your new mortgage and taxes per month. You now have enough of a down payment for a $150,000 home as well.

What else is a Personal Loan good for?

Your credit score. Remember I said it was the ultimate trustworthly type of loan available? Would you loan your friend $8,500 without any collateral? Would you loan your friend $8,500 WITH collateral? Maybe, maybe not but you’re understanding the banks hesitation I hope..

Your credit score is ALL about trust. Say it again, TRUST! If you loan your friend $500 and they pay it back in 2 weeks, then you loan them $1000 and they pay it back in 3 weeks, now you TRUST them more. If they don’t pay back the first $500 then you would never loan them $1000. Well if you never pay your credit card why would the bank give you money for a car?

So, the bank pulls your credit (forget the “score”) and sees your history of credit card payments, auto loan payments, mortgage payments, rental payments, bills and expenses and everything else you’ve had to pay. Are they going to trust you?

If your answer is No to that question you need to start building their trust right away and your “score” will go up accordingly as a person who actually pays back the loans they get. What you need to do is get a credit card, a personal loan or an auto loan JUST TO GET ONE. Use the money you get to pay it down if you need to because they can’t see what you’re doing with it. They just want you to pay the monthly payment and they’ll trust you with more money next time. Simple as that.

Think like a mortgage company loaning your friends money. Who do you trust, who don’t you trust and WHY? Then you’ll see what to do yourself more clearly. 

How to Save a Down Payment For Your First Home

If you’re looking at buying a home for the first time then you need to gather some knowledge on the subject so that you can get everything you’re hoping the first time around.

By that, I mean you could get talked into an interest only loan or ARM rate and later on wish you hadn’t done that. That’s something that can be avoided if you do your homework first. Think about the first car you bought compared the last car you bought. I’m sure you’re learning how to handle those car sales people very well now that you’ve done it a few times. The same goes for a home and you will get better at it once you learn a few things and go through the process.

SO… The first thing you want to do if figure out what you can afford per month and use that number to figure out what you can afford for your first home. Use my free mortgage calculator at the bottom of this page to find a mortgage payment of about 70% of the amount you can afford. The rest will go towards monthly taxes and possible condo fee.

This can be a quick process, don’t over analyze. Just get the rough estimate so that you can look at a few homes in the range you found. Use a current interest rate of 5-6% and change the mortgage amount until you get a monthly payment in your area.

The reason you want to do this is to figure out the exact amount you need to save for your down payment. It will make it much easier to save up for. Also include about $2500 for closing costs.

Let’s assume you can afford up to $150,000. The average first home buyer is allowed to put down about 3.50 percent for a down payment which equates to $5,250 + 2500 = $7,750 that you need to save. That’s $300/mo for 2 years if you’re starting from scratch.

I suggest you create a monthly bill with an automatic payment in your checking account and put it into another savings account in a different bank. It will be difficult to access and help you save that money for the home you want.

I like the 50/50 rule of saving money. At the end of the month save 50% and spend 50% of all extra money. That way you can still have fun and still feel good about saving up for your home.

Start Looking Right Away

If you are planning on saving for a year or 2 years to get your down payment I highly suggest looking at homes right away. There are MLS websites in every area that show all homes for sale and show what they sold for. So you can literally watch homes come on the market, sit for 4 months, lower their price and finally sell.

You’re comparing homes in your head without knowing it and it will give you much better negotiation skills when the time comes to buy. Negotiation comes from knowledge of other properties that have sold. After seeing 3-4 two bedroom condos sell on the market for $140,000 you’ll know that the new one on the market for $160,000 is asking too much. And you’ll know it right away!

You’re talking about THOUSANDS of dollars, not just a monthly mortgage payment. You’re going to have to pay it off at some point in your life so make sure it’s low to start with and you’ll have less to pay off in the long run.

Down Payments Increase Loan Amount

You have 2 friends who need $10,000 quick and you have it to loan them if you want to. Friend 1 told you they stopped paying their credit card 2 months ago and has no savings. Friend 2 pays everything they owe and has saved up $1,500 so far in hope for that $10,000. Who do you trust more to loan your money to?

The point is that if you save $8,000-$10,000 for your mortgage down payment the bank trusts you much more than someone coming to them asking for a “no money down” deal.

When the bank “pulls your credit score” they’re seeing a list of every good and bad thing you’ve done with a credit card, auto loan, personal loan and mortgage loan. They need that list to firgure out how trustworthy you are with their money. Then they developed the “score” which basically tells them right away if you’re getting the loan or not.

Increase your credit score by giving the banks a reason to trust you. Simply make the payments you said you would make.

Should I spend All of my Savings on the Down Payment?

Buying your first home can be an exciting and overwhelming experience. You’ve managed your money and credit and have a great score, so you’re certain that you’ll get a great rate. You’ve also accumulated a nice down payment. And you may be wondering: Should I spend all of my savings on the down payment?

          It may be a hard decision whether to put all your savings into a down payment, especially if the extra cash will get you a better interest rate. The good news here is that some of this decision comes down to math. If you’re on the fence, check out a mortgage calculator. Use this prevalent online tool to see just how much you would actually save over life of the loan by inputting varying down payments.

          If home-ownership is your goal, then you know that buying a home takes more than a down payment and a good credit score. If you put all your money down on the home, will there be any left over in case of an emergency? Think about it. If you should fall ill after you’ve taken on a mortgage and have no savings, how will you pay the mortgage? How will you eat? Most financial professionals recommend an emergency fund amounting to at least 6 months of expenses. If your mortgage payment is $1000, then you’ll need $6000 just to cover the mortgage, not to mention food, insurance, utilities and car related expenses. It can add up fast.

          You’re buying a house, right! You may need that money for repairs, furniture, property tax or higher utility costs. You may be surprised by some of the expenses that may pop-up. In the end, every financial situation is different, be sure to thoroughly assess yours before making such big decision.

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