Mortgage Down Payment
When you want to buy a house by getting a mortgage, you will need to make a down payment for a percentage of the property price. Normally, if you do not have enough savings at the moment, you would need to take some time to save up enough money to cover the mortgage down payment.
But this idea can present other problems. If you do not have any savings you have been gathering, saving up so much money can feel like you won’t be able to do it at all.
Also, you may not want to spend much time money-saving. If you have found a property that you particularly wanted to buy, it would not wait for you to save enough money for the mortgage down payment. Probably it will be sold.
Even if you don’t have such a special house in your aim, there might be a market movement that will cause property prices to go up. So, you might be wanting to buy a house while they are still cheaper. After all, even with a mortgage, you will be paying for it.
So, what can you do? Will you just give up? No. There is another way to handle this mortgage down payment, at least if you have a good credit history. In short; you can use a separate loan.
Using Loans for Your Mortgage Down Payment
While, normally, in order to get a mortgage, you would need to have a portion of the total price to buy the house you want. Depending on your lender, this portion can be up to 20%. But if you have a good credit history, and you are willing to increase your total end cost to buy the house, you may not need to have so much money ready.
Mortgage Loan Options
There are a couple of loan options that you can consider for obtaining the necessary funding to cover the mortgage down payment. Let’s have a look at these loan options.
The first option you may consider is to get a personal loan. If you have some funding ready but it is not enough for the mortgage down payment, you can use such a loan to make it up to the necessary amount. Or you might even get a personal loan large enough to cover the whole down payment. Of course, you may need to have a great credit score for the latter one.
However, you should be careful about this method. Since you will get a new loan debt in your records, this way will increase your debt-to-income ratio. If this ratio was already a bit high for your case, this may cause a problem during your mortgage approval.
Also, some mortgage lenders do not like it when people use this method to deal with mortgage down payments. As this payment is taken partially to ensure that you are serious about this investment, and partially to see that you can afford a such payment, this loan method might be considered not as good as your own savings. In fact, a few companies, such as Fannie Mae, makes it clear that applicant who uses loans to fund mortgage down payments won’t get approval from them.
Piggyback Home Equity Loans
If you are worried about the possible negative factors of using a personal loan, you may find a piggyback loan as a better option.
The “piggyback loan” is a term that is used for an additional you can get from the same lender. These are home equity loans your lender may attach to your mortgage to fill the difference over your savings to the required mortgage down payment amount.
Basically, if you needed to make a 20% down payment, but only can afford 12%, you may ask your lender to add a piggyback loan to cover the rest of 8%.
There are two problems with this solution too. For one, this type of loan is usually really expensive. The interest rates are not only high but also not fixed. So, its addition to the total cost may increase over time. The other problem is that, even if you are willing to take on the extra costs, your lender may not give you such an additional loan.
Either way, these solutions are still more than worth considering to achieve your goal of becoming a homeowner. Make your calculations and talk to as many lenders as possible before making your final decisions.