Those days when it was possible to get full mortgage loans for buying new houses without any down payment are long gone. After the subprime crisis that shook the real estate market, lenders only offer mortgages for purchasing a new house if you have paid part of the purchase amount from your pocket.
But there is nothing wrong in having to make a down payment for buying a new house. Not only does the down payment ensure that you find a mortgage loan on good terms easily, but it also reduces the monthly payments you have to make for repaying the mortgage. You also get some homeowner equity in the house, which can be used to generate funds later.
Another advantage is that when you have to make a down payment you are not too extravagant in buying a house. If you make the purchase only from mortgage funds, you are likely to exceed your budget and risk foreclosure.
However, you should not pay too much down payment either. You need to keep some funds for maintaining the house, paying taxes and other related expenses that you will have to bear after you buy the property. Avoid mortgage loans that ask for more than 20% of the sale price as down payment.
The lender will give you a loan only after you show him a substantial source for the down payment that would be under your control for some time. Loans are not acceptable sources for down payments but part of the money can be sourced from gifts or sellers’ discounts.
Some people face a problem in funding the down payment if they had not been saving money for the last few years. If you don’t have a lot of savings in your bank account, then you can resort to your retirement fund, but do this only if it is absolutely necessary. You might even have to pay a stiff penalty for making such withdrawals.
If you are not able to secure a down payment on your own, then you can seek help from government or private down payment assistance programs. However, these programs have various problems. Very few people qualify for the government assistance programs. The private programs are dubious and controversial and you should approach them with caution.
Always remember that the easiest way to fund a down payment is to plan early and start saving now if you want to buy a house in the next few years.