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Down Payment
An important step in purchasing is home is
determining how much of a down payment you'll make, and from
what sources the down payment and other costs will come. For
accurate answers to these questions, a current inventory of your
assets is crucial.
Begin by gathering all financial statements for
all your assets. You may not plan to liquidate all assets, but a
complete accounting is important. The assets you keep can serve
as collateral for a loan and as reserves which may be required
by your lender. If you're going to receive a gift from a
relative, try to obtain a letter stating the amount of the gift.
You may be able to borrower from your
401(k) without any tax penalties. If you liquidate your 401(k)
or IRA, there may be tax implications. Consult with your tax
advisor before liquidating any assets.
If you own stock you want to keep, consider borrowing against it
with a margin loan. Consult with your stock broker regarding
this option.
This worksheet may help you inventory your assets.
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Checking Accounts: |
__________________ |
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Savings Accounts: |
__________________ |
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CDs: |
__________________ |
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Stocks: |
__________________ |
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Bonds: |
__________________ |
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Mutual Funds: |
__________________ |
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Other Securities: |
__________________ |
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Retirement Funds (401K, IRA, etc): |
__________________ |
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Gifts from relatives: |
__________________ |
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Total Cash Available: |
__________________ |
Determine the total cash needed to close:
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Down payment: |
__________________ |
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Closing costs including points: |
__________________ |
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Prepaid expenses
(taxes, prepaid interest, insurance, pmi):
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__________________
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Cost of repairs, if any: |
__________________ |
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Total Cash Needed: |
__________________ |
Calculating the total cash needed can be
challenging, especially if you're doing this for the first time.
Consider getting help from a real estate or mortgage
professional. They're usually quite generous with assistance
and advice in anticipation of helping you with your transaction.
Ask your mortgage company to provide a Good Faith Estimate of
closing costs--including prepaid expenses.
If you're short on cash, consider asking the seller to pay your
closing costs. Discuss this with your Realtor prior to making
your offer.
Ideally, you'll want make a 20 percent cash down
payment to avoid Private Mortgage Insurance (PMI) and get the
best rate. If you are unable to put 20 percent down, there are
many programs available. Here are some of them:
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Zero Down Programs There are many zero down
payment programs available. If you qualify for a VA loan, you
can get a zero down program. Even if you're not a vet, several
lenders offer zero down loan programs. Your mortgage broker
can help you find the best one for you.
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Low Down Payment Programs There are numerous
FHA and conventional programs that allow you to put as little
as 2 to 5 percent down.
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Piggy Back Loans By getting a piggy back loan,
you can generally avoid paying PMI, even though you are
putting less than 20 percent down. The most common piggy back
loans are:
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80-10-10
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In the case of an 80-10-10, you put down 10
percent and get two loans--a first loan for 80 percent of
the purchase price, and a second loan for 10 percent of the
purchase price. Even though the second loan rate may be
higher than the first loan rate, you generally come out
ahead since you don't have to pay PMI.
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80-15-5
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Eighty percent first loan, 15 percent second
loan, 5 percent down.
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80-20
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Eighty percent first loan, 20 percent second
loan, no cash down.
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