Real Estate Tips: Your options for your downpayment

When you apply for a loan to purchase a property, the lender considers the amount of your down payment to determine how much funds will be handed over. The down payment is a sign of commitment and also a guarantee that lessens the risk for the lender. Rule of thumb is that the more down payment you can get from your own cash, the better.

Sources of funds

A lot of borrowers do not have a big amount of cash on hand for their down payment. You can use the money you have set aside in your savings account, borrow money from relatives or friends, use your 401K, use your assets, or have a co-borrower.

There are also communities which offer to subsidize a portion of the down payment for buyers who are a bit cash strapped.

LTV Ratio

The down payment is often declared as a percentage of the sales price. Let us say the mortgage is around $300,000 and has a loan to value ratio of eighty per cent, then the needed down payment will be 20% or $60,000.

Other options

If you have a good credit standing, some banks even offer a zero down scheme for first time home buyers. This is often an option if you have limited sources of funding to have sufficient down payment. The interest rates though will be higher since there will also be no equity in the house when you don’t put it a down payment.

You can also go for a lease with an option to buy. You will rent the property and at any point you may purchase the property on the price and terms agreed upon by you and the owner.