The ABC’s of Financing
A: Ask your bank or your lender questions to gather more information.
B: Be prepared to account for additional homeownership costs (Ex: bank, lender and attorney charges).
C: Choose the right type of lender. Some of the most popular types:
- Mortgage Bankers
- Mortgage Brokers
- Wholesale Lenders
- Portfolio Lenders
- Direct Lenders
- Correspondents
- Banks or Credit Unions
D: Determine what you can afford for a down-payment.
E: Estimate your mortgage payments.
F: Focus on mortgage affordability, not how long it will take you to pay off.
G: Gather as much information as possible.
H: Help avoid potential dilemmas and pay attention to the terms of any loan you decide upon.
I: Investigate all the financing options available to you.
J: Judge the mortgage payment that will work best for you.
K: Know the source of your funds.
L: Look ahead at your future financial situation.
M: Mortgages are loans for the purchase price of a home that don’t include the amount of down-payment. Payments are made on a monthly basis. They include the amount of money borrowed (the principle) plus the interest the lender charges.
N: Never forget to factor in taxes and insurance when determining your annual home expenses.
O: Options exist for down-payments outside of a savings or checking account. Contact your local Affordable Housing organization to learn about the assistance and grant programs that are in your area.
P: Pay close attention to the interest the lender charges if you have decided to take out a loan. They are very competitive!
Q: Question and communicate with your lender to reach the best option.
R: Research different options to pay for a down-payment:
|
Down-Payment Options |
Definitions |
| LTV Conventional loan (Loan to value) | A loan that allows you to borrow the entire purchase prices, with a high interest rate |
| Down-payment programs | Programs like AmeriDream, Downpayment Gift Program, The Nehemiah Program. |
| Government-backed loans | The government backs part of the loan so the lender can offer a higher percentage loan to value (Ex: Veterans Administration loans) |
| Sellers who do owner financing | Sellers can act as a bank and allow you to make payments without a down payment |
S: Standard down payments are around 20% of the homes purchase price if you do not want to pay PMI.
T: Try not to rely on your 401K plan, IRA or Roth IRA to finance a down payment. These are risky last resorts.
U: Understand your current financial situation.
V: Verify all your information.
W: Will you be comfortable with your decisions in the future?
X: Examine the types of loans that may be available to you:
|
Type of Loan |
Definition |
| Thirty-year | Payments are spread over thirty years with more affordable monthly payments |
| Fifteen-year loan | Payments spread over the course of 15 years. You have a higher monthly payment, but you reduce the total amount of interest paid altogether. |
| Amortized | The same payment amount is made over time that includes interest as well as the money to pay back the principal. |
| Annual percentage rate (APR) | Includes upfront costs in addition to the interest rate. |
Y: You are not alone, 92% of home buyers borrow money to finance the purchase of their home.
Z: Zip up a solid plan by using this worksheet to help plan where your money will come from:
|
Source of Funds |
Current Amount |
Future Amount |
| Bank accounts (checking/savings accounts) | ||
| Cash gift(s) expected/promised (gifts from family and friends) | ||
| Certificates of deposit | ||
| Sale of stocks | ||
| Cashing in of bonds | ||
| Sale of mutual funds shares | ||
| Sale of personal property | ||
| Tax refund due | ||
| Other | ||
| Total Cash Available for Down Payment |
