How much can you put down?
The ideal situation for homebuyers
is to make as large of a down payment as possible, when
buying
a home. The benchmark is 20 percent down, but this
is unattainable for mast people, especially for first
time buyers.
Bob Tedeschi, columnist for The New York Times, offers
advice to people who cannot afford a large down payment,
in his July 20, 2006 article, “Getting Started:
Determining Whether to Refinance.”
“Twenty percent remains the magic number, financial
advisors say, because putting down at least that much
allows consumers to avoid private mortgage insurance,
or P.M.I., which boosts monthly payments without adding
a cent to the home’s
equity.”
But who has the money to put down 20 percent of the
loan?
Thirty years ago, you had to put at least 10 percent
down just to be considered for a loan with the worst
rates. Now, mortgage
brokers are becoming more aware of borrowers’
needs, and are allowing smaller down payments to be
made.
You may even qualify for one of the many government-financed
housing assistance programs that do not require any
down payment at all.
But chances are that you will still try to make as large
a down payment as possible to avoid extra fees and have
lower monthly payments.
“Before arriving at the ideal down-payment figure,
though, homebuyers must first figure out how high a
monthly
mortgage payment they can afford, according to Lynn
Law, director of education and counseling for the Long
Island Housing Partnership, a nonprofit housing group
based in Hauppauge, N.Y.”
“Ms. Law says banks will usually allow buyers
to allot 33 percent to 38 percent of their gross monthly
income to a mortgage payment.” But their monthly
income cannot exceed 43 percent of the payment.
“With such vexing implications for those who cannot
handle a 20 percent down payment, it is no surprise
that homebuyers continue to turn to parents, friends
and other family members for help. Indeed, with housing
prices soaring in recent years – and with more
wealthy and aging Baby Boomers able to help their adult
children buy homes — industry executives say more
homebuyers are getting gifts to help with their down
payments.”
Again, this does not apply for everyone. But for those
who are in the beneficial position to receive a “gift,”
should let the givers know about certain tax implications.
“Internal Revenue Service guidelines state that
any individual may give a gift of up to $12,000 without
reporting the gift for tax purposes.”
Parents of a couple can make a combined donation up
to $48,000.
So, as mentioned, most people need assistance. “In
New York, for instance, the State of New York Mortgage
Agency (www.nyhomes.org), a state-financed housing assistance
group, allows first-timers to secure mortgages with
3 percent down, with rates in the 5 percent range. The
agency also offers financial help with closing costs.”
Making a 20 percent down payment will avoid fees and
will contribute to lower monthly payments. But for the
majority
of home buyers, there are ways to get around the
20 percent mark, without paying rates that are too high.
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