Buying the first home can be an intimidating process. From negotiating with realtors and sellers to suffering through attorney review, nerves can be easily frayed and hopes can be ruthlessly dashed. Yet the aggravations of a sales contract or even property auctions often pale in comparison to securing the necessary financing for mortgage loan’s equity requirement. This condition is fulfilled with the purchaser’s initial deposit. Saving for this outlay is essential prior to seeking a home loan. Because of this, home buyers do well to consider the places in which additional funds can be found.
While loans with small deposits are available, they are not necessarily best for each and every first-time homebuyer. Smaller deposits – under 20 percent of the sales price – require larger loan amounts. Beyond that, most lenders will require private mortgage insurance when borrower investment undershoots 20 percent. Consequently, the monthly mortgage payment is higher, placing more pressure on household cash flow. Furthermore, banks that base interest rates on risk factors look upon a higher loan-to-value ratio as less safe, and therefore charge a higher rate. The lesson is clear: lower deposits generally accompany higher monthly payments. Rather than seek out the program with the smallest equity requirement, first-timers do better to find ways to save up larger deposits.
Although the first method may appear ridiculously obvious, it still bears emphasis. First-time homebuyers should make sure their savings are yielding interest at the highest rate possible. Loyalty to a local bank must take a back seat to financial necessity. Utilizing search engines and financial publications to discover the most fruitful savings accounts, certificates of deposit and money market accounts is time well spent. For example, search terms like “high-yielding savings account” produce multiple sites for comparison. Consultation with a certified financial planner may also produce promising leads. Under no circumstances should a first-time nest egg simply sit in a checking account.
Another way to enlarge an initial deposit is to reduce daily, weekly and monthly expenditures. Clipping coupons is not just for little old ladies. Doing so can sharply reduce bills for groceries and haircuts, for example. Other deals can be found through online retailers, which often have less overhead expense than traditional brick and mortar stores. Over and above this type of thrift, genuine austerity can add to a home purchase cache. This entails giving up vacations, meals at restaurants, expensive gourmet coffees and trips to the theater. If such luxuries are regular indulgences, giving them up will super-charge any deposit accumulation fund.
Finally, first-time homebuyers should not neglect the sources of down payment assistance. Such financial aid is not conditioned on repayment, but consists of grants to qualified households. Each grant has its own criteria for approval, yet most are funded by charitable non-profit organizations. Thus, application must be made to one or more of these agencies, which can require a mortgage approval and signed purchase contract. In certain cases, the mortgage loan officer makes the application for funds on behalf of the borrower. This individual can do much of the legwork in obtaining this form of assistance.
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