Real Estate Community Forum

There has been talk that many mortgage companies will have strict guidelines when approving someone for a home mortgage because of the current housing crises. Is this true? If so, then how much should people have for a down payment? I was hoping it was 10%, but someone said it could be as high as 30%. I pray this is just a phase or a short trend that mortgage companies are following because it will take a long time for me to save 30% towards a down payment.

You are going to need a high credit score to get away with a low down payment in this market but there are lenders out there.

There are also advantages to putting some money down. You lower your monthly mortgage payments, and if you put 20% or more down, you avoid paying for private mortgage insurance (PMI).

If you haven't already saved up thousands of dollars, here are some ways to raise the needed funds.

1) You can withdraw up to $10,000 penalty-free from an individual retirement account (IRA) for a down payment on your first home. However, you may have to pay income tax on the withdrawal, and you might have less time than you’d like within which to return it to the IRA if you decide not to use it.

This $10,000 is a lifetime limit -- and must be used within 120 days of receiving it. Ask your tax accountant for details, or contact the IRS (800-829-1040, http://www.irs.gov).

2) Family, especially parents and grandparents, will often help with home purchases. As a practical matter, the gift must come from a close family member -- the lender involved in the rest of the deal won’t trust that gifts from distant family members or friends are not secret loans.

Gifts up to $12,000 per year per person can be given without worrying about gift tax. This means, for example, that every year your mother and father can give you and your spouse a total of $48,000 without having to file a gift tax return. They should also give you a letter stating that the money is indeed a gift with no expectation of repayment.

3) Another way to raise money for a down payment is to borrow it from friends and family -- many people prefer to ask their loved ones for a loan rather than a gift. Of course, you must repay the money, and your bank or institutional lender will factor this addition to your debt burden into its own decision on whether to loan you money.

4) Buying a house together with someone who isn't a spouse or partner is a growing trend. No wonder, since it can cut your costs in half and help you break into the real estate market.

5) Another way to enlist the help of family or friends, or even an investor, is to give up a share of the ownership of your house in exchange for a cash contribution. Assuming that this person doesn't actually share your house, however, such arrangements can give rise to conflicts. With one of you viewing the house as a home and the other viewing it as an investment, issues such as the need for remodeling, or the other person's desire to sell the house, may be hard to resolve.

6) An institutional lender or in rare cases, the seller or a private investor, can also help you bridge the gap between how much you can borrow on a primary loan and the cost of your house. They would take a second mortgage for some or all of the needed amount. The down sides of second mortgages include higher interest rates and, in the case of some short-term second mortgages, lump-sum payments (balloon payments) at the end of the term.

Good Luck

I am currently trying to save as much money as possible before buying a home. In reality I would like to have enough money to avoid taking out a mortgage. Who wants to pay the high interest rate on a mortgage? Have you ever calculated the amount of money you pay once you finish paying your mortgage? Once you pay it off, you could have bought two houses with the amount of money you spent. Hopefully I can eventually have enough saved to put 50% down. that's my plan and I'm sticking to it.