Most lenders offer loan financing programs that allow the borrower to finance up to 100% of the sales price of a new home. However, if no down payment is made, the borrower will be required to pay for private mortgage insurance (PMI), see question ten, below, for further information on PMI. If you can afford to put more money toward a down payment, it will reduce the amount of your monthly mortgage payments. Some loans programs offer 3% down payments if you meet certain income standards. The Veterans Administration (VA) and the Rural Housing Service (RHS) also offer no-down-payment loans.
The lender will want to know how much money you plan to put down and the source of those funds. Sources you may draw upon include savings, stocks and bonds, pension funds, real estate holdings, life insurance policies, mutual funds, and employee savings plans.
You may also use a gift of money from a family member that need not be repaid. If you do this, you will need to present a letter to your lender that states the amount of the gift, is signed by the giver, and is notarized by a third party. A gift letter “form” may be obtained from your lender.
You are also now allowed to withdraw up to $10,000 from both traditional and Roth Individual Retirement Accounts (IRAs) with no early withdrawal penalty, if used towards buying your first home. Please ask your tax professional about the use of IRAs as those rules can change regularly.
Under some home mortgage programs, such as Fannie Mae’s Community Home Buyer’s ProgramSM with the 3/2 Option, part of your down payment may come from a grant from a nonprofit housing provider in your community.