Saving
funds
for a
down
payment
should
be part
of an
overall
program
to get
your
finances
in order
prior to
shopping
for a
home.
This
includes
rounding
up
financial
records,
examining
your
spending
habits,
and
setting
a budget
you can
live
with.
Remember,
too,
that the
down
payment
is not
the only
up-front
expense.
An
allowance
for
closing
costs
should
also be
included
in your
savings
budget.
How
much is
required?
The down
payment
is
usually
expressed
as a
percentage
of the
overall
purchase
price of
the
home,
and
varies
depending
on the
lender,
the type
of
financing
and
amount
of money
being
lent. In
the
past,
the
typical
down
payment
was 20%,
but in
recent
years
lenders
have
been
willing
to offer
conventional
financing
with as
little
as 3%
down.
U.S.
Government
financing
programs,
such as
those
offered
by the
Dept. of
Veterans
Affairs
(VA) or
the
Federal
Housing
Administration
(FHA),
also
require
minimal
down
payments.
Private
mortgage
insurance
Typically,
if your
down
payment
is less
than 20%
of the
purchase
price,
lenders
will
require
you to
carry
PMI, or
private
mortgage
insurance.
This
insurance
protects
the
lender
in case
of loan
default,
and
usually
involves
an
up-front
payment
at
closing,
as well
as a
monthly
premium.
However,
once you
have
paid off
20% of
the
loan,
you can
request
the
policy
be
canceled.
Some
lenders
cancel
the
premium
automatically,
while
others
require
you to
make a
request
in
writing.
Gifts
If you
are
having
trouble
saving
enough
money,
many
lenders
will
allow
you to
use gift
funds
for the
down
payment--as
well as
for
related
closing
costs.
The gift
may come
from
family,
friends
or other
sources,
but
remember
that
lenders
usually
require
a "gift
letter"
stating
the gift
doesn't
have to
be
repaid.
In
addition,
some
lenders
will
also
require
you to
pay at
least a
portion
of the
down
payment
with
your own
cash.
Thus, if
you plan
to use
gift
money to
purchase
your
house,
ask your
lender
about
their
policies
regarding
gifts.
Earnest
money
Buyers
are
usually
required
to
deposit
earnest
money
with the
seller
when
they
make an
offer.
If the
offer is
accepted,
the
earnest
money is
then
credited
towards
the down
payment.
The
amount
varies
widely
depending
on the
seller
and
local
custom,
but be
prepared
from the
outset
to have
funds
earmarked
for this
purpose.
Don't
forget
closing
costs
In
addition
to the
down
payment,
you will
also
need to
save for
additional
fees
associated
with the
loan.
Known as
closing
costs,
these
charges
cover
items
such as
title
insurance,
documentary
stamps,
loan
origination
fees,
the
survey,
attorney's
fees,
etc.
When you
submit
your
loan
application,
lenders
are
required
to
supply
you with
a good
faith
estimate
of your
closing
costs.
Some
buyers
are
surprised
by the
amount
of the
closing
costs,
which
can
easily
run into
the
thousands
of
dollars.
Remember,
though,
that
closing
costs
can be
negotiated
with the
seller.
For
example,
you may
agree to
pay the
full
asking
price in
exchange
for the
seller
paying
all the
allowable
closing
costs.
