Mission: down payment

By Marilyn Kennedy Melia
CTW Features

 Saving for a down payment is tough, but there are programs that can make buying easier Saving for a down payment is tough, but there are programs that can make buying easier The will is there, but the way is murky. Surveys show that young adults — traditionally a big home buying group — would like to purchase homes but face far more hurdles to doing so than previous generations.

“It’s especially difficult for them,” says Jessica Lautz, survey director for the National Association of Realtors. “Income levels are lower than they’ve traditionally been,” Lautz notes, and student loan and credit card bills hamper savings, making the down payment the No. 1 hurdle for first-time buyers.

Still, experts say recent changes in lending rules and special programs can help hopeful buyers conquer a seemingly impossible mission.

Check out government loans

One-quarter of the millennials (age 34 and younger) who bought last year got a cash gift from friends or family to help them finance their purchase, according to the NAR. Many buyers don’t have anyone to gift them down-payment cash, but Uncle Sam, trying to foster home ownership, offers government-backed low- or no down payment loan programs.

Some agencies — the Veteran’s Affairs and the U.S. Department of Agriculture, for example — offer mortgages available to certain borrowers, with eligibility guidelines on each agency’s websites. But the Federal Housing Administration — a more widely available government loan — allows a down payment of 3.5 percent of the purchase price. Visit hud.gov for more info.

The FHA, accepting credit scores as low as 580, has been popular since credit standards tightened after the financial crisis. “If you have a low credit score it pays to shop around, since one lender might reject your credit score … but another will accept it,” says Erin Lantz, vice president for mortgages at real estate site Zillow.

Investigate the latest mortgage options

Even without an acronym like FHA or VA, most loans have government involvement. Government-sponsored enterprises Fannie Mae or Freddie Mac buy mortgages from lending companies, and therefore dictate rules on how they should be made.

Down-payment minimums on these “conventional” mortgages recently have been dropping to encourage homebuying. For instance, new Fannie Mae and Freddie Mac rules allow down payments of just 3 percent of purchase price for qualifying borrowers. For these very low-down mortgages, though, “Any reputable lender wants to see that a borrower has good credit and has demonstrated the ability to repay the mortgage,” says Douglas Rotella, executive vice president at HomeBridge Financial Services. “These loans represent a great opportunity for first-time buyers, but to maximize it, they should be diligent in making sure their credit scores are as high as possible.”

Free classes and coaching to boost credit and savings are available at nonprofits around the country, also listed at www.hud.gov, points out Doug Robinson, spokesman for NeighborWorks, a housing nonprofit.

Get a gift

Many hopeful first-time buyers are receiving gifts, but lenders will want to ensure it’s really generosity motivating the donor. “[The individual giving the gift will] be asked to sign [a letter] that states that they don’t expect to be paid back,” says Neil Caron, vice president at Freedom Mortgage Corp., in South Windsor, Conn.

For FHA loans, the entire down payment can be a gift, adds Caron. “It used to be that borrowers had to use their own funds for at least 5 percent of the down payment on conventional loans, but now it can all be a gift – if the borrower is buying a single family, principal residence,” Caron adds.

No relative with ready cash to give? “Buyers should really look to see if there are any state or local programs that assist with down payments,” says Lautz, who suggests browsing homebuying programs listed at hud.gov.

It can be an uphill battle to come up with the down payment, but by finding the right places to look for help, more should be able to buy, concludes Caron.

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