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A dozen ways to get a down payment

Not long ago, no-down payment loans were the height of fashion for homebuyers. But now that lenders have tightened their standards, borrowers once again are expected to "put some skin in the game," to use the industry's favorite catchphrase. That "skin" refers to the borrower's own cash, and it means down payments are definitely back in style.

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The chief advantage of a down payment today is simply the ability to qualify for a loan, since only a handful of so-called "zero-down" loan programs still exist. Yet down payments have other benefits, too.

The more money you put down to buy a home, the smaller your monthly payments will be, explains Greg Gwizdz, national sales manager at Wells Fargo Home Mortgage in Des Moines, Iowa. (Use the mortgage calculator to determine what your payment will be.)

A buyer's down payment becomes a homeowner's instant equity when the purchase closes, and that equity can be borrowed against with a home equity loan or line of credit. Guidelines to qualify for these loans have become much stricter, however, and, Gwizdz adds, many first-time homeowners are "surprised by the true cost of owning and maintaining their home" and thus should keep some reserves rather than allocate every dollar to their down payment. Some loan programs require cash reserves for this very reason.

Benefits of a down payment:
Borrow less money to buy the same-priced home.
Shop among more lenders, loan originators and loan products.
Get a lower interest rate.
Pay less for mortgage insurance.
Avoid mortgage insurance altogether, if the down payment is at least 20 percent of the purchase price.

How to get a down payment
Many homebuyers have difficulty coming up with a down payment. Here are a dozen ways to do it:

12 ways to obtain a down payment:

A down payment needs to be "sourced and seasoned," Gwizdz says. That means the lender needs to know how you obtained the funds and that you've had control of those funds for at least several months. Gifts and seller's concessions are acceptable, up to the percentage allowed by the loan program, but borrowed money can't be used as a down payment because it is debt that has to be repaid.

Government-backed programs allow smaller down payments
Two government-run programs are designed to aid homebuyers who haven't saved much for a down payment. The Federal Housing Administration, or FHA, offers mortgage insurance that allows qualified buyers to purchase a home with a 3-percent down payment, all of which may be a gift. The U.S. Department of Veterans Affairs offers a home-loan guarantee program that helps military veterans buy a home with no down payment.

Next: Borrowers can reduce or even eliminate their closing costs ...
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