Dealing with the Down Payment

When a 20% downpayment seems out of reach, try these low-down options.

Ideally, you'll put 20% down toward your new home because at that level you can avoid paying private mortgage insurance. If your calculations indicate that you can't put at anywhere from 3%-10% down, here are some options to consider:

• Consider a no-down loan or a low-down loan. Some loan types such as VA or USDA loans allow you to finance 100% of the sales price. FHA loans often allow you to purchase a home with only 3% down.  Or you can get a more conventional loan package consiting of one loan for 80% of the home's price and a second loan (at a higher interest rate) for 20%.

• FHA Loans are perfect choices for First-time homebuyers or someone who hasn't owned a home in the past three years.  Check with your lender to see if they process FHA loans.  If not, it may pay big dividends to find one who does. There are some restrictions to what type of home qualifies for this type of loan.

• In Oregon, we have a program specifically designed for rural areas such as Bandon, Coos Bay, North Bend, Coquille and Port Orford called the Oregon Bond Program.  This couples with the FHA program and provides buyers with the lowest possible interest rate or repair assistance.  Read more about the program and how to qualify at the Oregon Bond Programs website.

• VA loans are wonderful for our veterans and service members.  They are one of the only remaining loan options that don't require buyers to have a down-payment.  There are certain restrictions on what homes will qualify for this type of loan, but the restrictions are less than FHA loans in some instances and can be a great option to excersize for your first home.  People who qualify for a VA loan may be limited as to how many times they can use the VA program for the purchase of a home.

• The USDA's Rural Housing Service also has a no-money-down program for moderate-income people seeking to buy in rural areas. All of Coos County qualifies for USDA's targeted area.  For more information visit the USDA's Web site.

• Less likely options may include trying to rent using a lease-option contract, which gives you the right to live in/rent the house for a period of time in which you have the option of purchasing the home for an agreed upon price, usually determined prior to the rental agreement.  Most homes listed by a Realtor will not consider this option without a large downpayment.  Remember, the sellers goal is to sell the home, not rent it.

• Look for property whose seller is willing to act as the lender.  Most often refered to as an Owner Contract.  You don't have to meet institutional credit standards however you may not get as good of an interest rate and there are additional fees incurred in setting up a monthly collection account.  Most sellers who are willing to carry a contract demand a decent downpayment and may request additional large sums be paid at the end of three or five years or will only carry the note for five to ten years and at the end of which, you will have to seek conventional financing options to pay the owner off for the remaining balance.

• Consider a penalty-free IRA withdrawal for a first home. Once in your lifetime you can withdraw up to $10,000 from your IRA without paying a penalty, regardless of your age, to help pay for a first home for yourself or a family member (such as a spouse, child, grandchild, parent or grandparent). If you're married, you and your husband or wife can each take $10,000 from your IRAs penalty free for a first-time home purchase.
  
  If you have a traditional IRA, you won't get hit with the usual 10% early-withdrawal penalty, but the money will be fully taxed in your top bracket (except to the extent that the withdrawal represents nondeductible contributions -- money on which you paid federal income taxes on before stashing it in the IRA).
  
  Roth IRAs offer an even better deal for first-time home buyers: You can withdraw 100% of your contributions tax- and penalty-free at any time (for first-time home purchase or anything else). On top of that, you can take up to $10,000 of earnings penalty free. And, if your Roth has been opened for at least five years, those earnings are tax-free, too.