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Friday, March 4th is "Get Up and Do Something" day. 

Let me challenge you to consider starting to save for a down payment on that dream home!

Saving for a down payment on a home can be one of the most challenging tasks a family faces in the quest for home ownership. Creating a down payment savings plan and sticking to it will help potential buyers reach their goal of home ownership faster.

Down payment requirements for 2011 are back to the same requirements from before the most recent mortgage and housing meltdown. For 2011, the basic down payment requirements are as follows:

Standard Fannie Mae / Freddie Mac Conforming for mortgages up to $417,000 loan amount: 5%
High-Balance Fannie Mae or Freddie Mac up to maximum limits in each region: 10%
FHA loan with credit score of 620 or higher: 3.5%
FHA loan with credit score between 550 and 619: 10%
Veterans Administration (VA) loans: 0% (yes - 100% financing)
USDA Rural Development loan (if your area qualifies - see below): 0% (yes - 100% financing)
Jumbo mortgage purchase loans for amounts above high-balance limits: 20% - 40%

All of the rules for down payments changed in 2008 back to the standard down payment programs of the past. If your home is located in a USDA lending area, then you could participate in the USDA zero down payment mortgage program. Veterans can also still purchase homes with zero down payment as well under the VA mortgage program. Otherwise, you will need a minimum 3% to 3.5% down payment to participate in FHA, Fannie Mae or Freddie Mac programs.

The purchase of a home usually entails saving for three up-front costs. The down payment is the largest part and is a percentage of the total purchase price of the house. As the economy improves and home prices stabilize, more people will be able to purchase a home and reap the substantial tax benefit o home-ownership. Today, first time home buyers can still purchase a home with no down payment only with the VA or USDA programs. However, putting even a small down payment down of 3% or more can help you get a much better interest rate.

In addition to a down payment, funds are needed to cover closing costs. Closing costs include all fees required to execute the sales transaction, such as attorney fees, title insurance, appraisals, points and tax escrows. While these charges vary considerably, most home buyers will need at least a few thousand dollars for closing costs (also tax-deductible).

Finally, home buyers need to show that after paying the down payment and closing costs they will still have some reserve funds to protect against short-term cash flow problems. Ideally, a home buyer will have at least three months' worth of housing payments available after closing. These funds do not need to be paid out; they simply remain in the home buyer's savings. Many programs today do not require any reserves at all.

As an example of total cash that used to be required, a home buyer purchasing a $200,000 home with a $1,750 monthly housing payment would need to have approximately $20,000 available. This includes $10,000 for a five percent down payment, approximately $5,000 for closing costs and about $5,000 in payment reserves. After closing, the home buyer would have $5,000 left over.

Today, borrowers can purchase a home with either no down payment through USDA or VA or with a 3% to 3.5% down payment and in many cases have the seller or lender finance closing costs. With little or no down payment or closing costs needed at closing, borrowers only need to show that they have reserves. Even though a borrower might not need reserves for a loan program, it is a good idea to actually have money set aside in case of emergency.

Based on the requirements outlined above, you should develop a savings plan that will help you achieve your goal of home ownership in the near future. Since the down payment required depends on the purchase price, you should meet with one of Atkins & Associates mortgage lending professionals to determine how large a mortgage can be obtained. The maximum loan amount will determine the approximate price range in which you should be looking. For example, a home buyer whose income will support a mortgage of $190,000 can look for homes with a price of about $200,000 and plan to save a down payment of at least $6,000.

Before starting a savings plan, a future home buyer needs to determine his or her current financial position. This includes reviewing all assets and liabilities, developing a budget and planning how much to save each month. When analyzing total current assets, a consumer should not overlook any source of funds. In addition to all checking and savings accounts, many people have CDs, stocks, mutual funds and savings bonds. Retirement funds such as a 401k or an IRA can be counted toward the payment reserve requirement. Some 401k plans even allow employees to borrow against the plan. Proceeds from borrowing against one's own retirement funds can be used toward a down payment.

By subtracting all current financial assets from the amount of funds needed to purchase a home, one can determine how much needs to be saved. A cash flow budget should then be prepared to determine how much can realistically be saved monthly. Some sacrifices of non-essential items may need to be delayed temporarily in order to meet each monthly goal! No matter how a home buyer accumulates funds to purchase a home, careful planning will always smooth the road to home ownership.

As savings increase and the opportunity to purchase a home draws nearer, home buyers need to make sure that all funds saved are fully verifiable. Mortgage lenders have tightened verification procedures for down payments to insure that all of the funds a borrower claims exist and were not borrowed. The number one source of mortgage fraud in the 1980's was consumer misstatements about their financial assets.

Many "would-be" home buyers look into renting a home with an "option to purchase" (which Atkin & Associates can assist you with) as a method of saving a down payment. In these transactions, the seller/landlord will credit a portion of the monthly rent toward the purchase price. Only the portion of a rental payment that exceeds the amount of the "set-rent", can be applied to the down payment. This can be a terrific way for renters to be able to save for a purchase that few people end up thinking about. As a result, this type of transaction can often get you into a home quicker, without the need to relocate to a different home...saving the time and inconvenience of a move.

Of course, the easiest way to save is to receive a gift from a relative. More than half of all first time home buyers receive gift funds from relatives in order to help with their down payments. While Fannie Mae and Freddie Mac mortgage loans require that a borrower putting less than 20% down must have at least 5% of their down payment be from their own funds, FHA allows the entire down payment to be gift funds. No matter how you accumulate the funds to purchase a home, careful planning (which Atkins & Associates can assist yu with), will always smooth the road to home ownership.

For assistance with qualifying for your home purchase within the United States, please contact Atkins & Associates at: (540) 286-2323 or visit us at: www.atkinsandassociates.net or email us at: billye@atkinsandassociates.net

We are here to HELP & We CARE!