When purchasing a home, one of your top questions may be, “How can I afford to make a down payment?”
Even if you have been saving up for your down payment and closing costs, it can still be difficult to afford the upfront payments you need to make when buying a home.
In this post, we will answer some more specific questions you might have about making your down payment. We will let you know what sources of funds are and are not acceptable.
Can You Use a Loan to Make a Down Payment?
First of all, you might be wondering whether you can simply borrow money to make a down payment.
Generally speaking, the answer to this question is a resounding, “no.” You cannot use a loan to make your down payment.
For one thing, depending on the type of loan you use, there may be a specific rule against it.But even if that is not the case, it is unlikely that you are going to find a lender willing to accept a situation where you are covering your down payment with money you are borrowing.
The entire point of the down payment is to reduce the risk associated with the mortgage. The more money you put down on a home, the less risky the loan is. That is why putting down more money on a home can sometimes help you offset other risk factors in your borrower profile like an imperfect credit score.
If you are borrowing the money to cover your down payment, that does not reduce the risk that you will default on your mortgage at all. You will be trying to pay back that loan and pay off your home loan simultaneously.
Can You Use Gift Money to Make a Down Payment?
Your next question is probably whether it is possible for you to make your down payment using money someone gave you as a gift.
The answer to that question is, “it depends.”
You will need to find out the rules for using gift money for the type of mortgage for which you are applying.
If you are eligible to use gift money to make your down payment, you will need to obtain a letter that documents the gift and explicitly states that it is not a loan.
A full discussion on gift money for down payments is beyond the scope of this post. We may cover it in more detail in a future article. Regardless, you can ask us your questions about gift money during your consultation, and we can let you know what to expect.
Do You Even Need to Make a Down Payment?
One more consideration is whether you have to make a down payment to purchase a home in the first place.
Homebuyers often believe that a 20% down payment is always required to buy a home. But this is not true.
For one thing, some types of mortgages like conventional or FHA loans may carry lower down payment requirements with the right qualifications.
For another thing, there are some types of home loans that do not require any down payment at all if you are eligible. These include VA and USDA loans. Both can provide you with 100% financing.
Learn More About Down Payment Options or Apply Now
If you have more questions about down payments, Premier Lending Corp can help you explore your options.
Tell us about your financial scenario, and we can help you find the lending product that will be most suitable given your down payment ability. To get started, please give us a call today at 954-840-8811. We work with homebuyers throughout Florida.