Coming Up With Your Downpayment
Wednesday, October 8th, 2008
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One of the factors that lending institutions look at is how much downpayment can a buyer make. A downpayment is a borrower’s “goodwill money” and a sign of his intent to make good on a loan and a lender’s assurance to lessen the risk in case the borrower defaults on his monthly payments. The bigger the downpayment, the bigger the chances of getting a higher loan amount or a lower monthly amortization. Generally, borrowers do not have big amounts of cash on hand to be given as downpayment. However, they do have other sources of funds aside from their own savings. It could be from family, friends, relatives, money from sales of stocks or bonds or a qualified co-maker.
To accomodate buyers with a limited downpayment, lending institutions and other mortgage companies have come up with innovative solutions:
- Zero downpayment loans. As the name implies, this loan does not require a downpayment. This is usually offered to first time buyers who can make the monthly amortizations but have no family , friends or relatives who can lend them the downpayment.
The downside however is that the interest rates or the monthly amortizations are usually higher. - Rent to own loans. A buyer starts off as a renter with the option to buy the property any time during the term of the lease, at a price acceptable to the owner. In most cases, the rent amount you paid will be fully or partially applied as downpayment.
Subsidy programs are sometimes even offered by cities that are hoping to expand their communities.