Tuesday, February 24, 2009

Put Some Skin In The Game

by D. Babbs

It seems like everyone wants to live the American Dream. They want the picket fences, high paying job, spouse, 2.5 kids, and of course, a house they can call home. However, getting a house is not an easy process and getting a mortgage loan, especially as a first time buyer, can be very complicated. One should consider putting a down payment on a home and not fall victim to those zero down payment plans.

Commonly referred to as “skin”, a down payment on a home has several benefits including the ability to qualify for a loan, borrowing less money to buy the home, getting a lower interest rate, and paying less for mortgage insurance. In addition, homebuyers will be able to take advantage of smaller monthly payments with a higher down payment. The amount of the mortgage down payment may vary, but generally you must make a down payment that equals at least 3 percent of the purchase price. Of course, the more you put down, the better, as along you have cash for emergencies and monthly expenses. Homebuyers will also need money for closing costs, which are about 3% to 5% of the purchase price.

The following list contains a few options to help homebuyers come up with their down payment:

· Set up an automatic saving plan.

· Take a loan from your 401(k) retirement plan and repay yourself with interest

· Sell a car, boat, motorcycle, collectibles or other assets.

· Liquidate stocks, mutual funds, savings bonds or other investments.

There are also several government programs that assist individuals in affording a down payment. These programs are for people who struggle to save a down payment, if the seller is motivated to contribute. However homebuyers should make sure they can afford monthly payments.

As with any major decision, one should do a lot of research. Take the time to educate yourself on the home buying process and compare any mortgage options to understand their pros and cons.




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