6 Creative Ways to Afford a Home
If your income and savings are making home buying a challenge, consider these
options:
- Investigate local, state, and national down payment assistance programs.
These programs give loans or grants to cover all or part of your required
down payment. National programs include the Nehemiah program (http://www.getdownpayment.com)
and the American Dream Downpayment Fund from the U.S. Department of Housing
and Urban Development (http://www.hud.gov).<
- Get the seller to provide financing.
In some cases, sellers may be willing to finance all or part of the purchase
price of the home and let you repay
them gradually, just as you do a mortgage.
- Consider a shared-appreciation,
or shared equity, arrangement. Under this arrangement, your family,
friends, or even a third-party may buy a portion
of the home and thus share in any appreciation when the home is sold.
The owner/occupant usually pays the mortgage, property taxes, and all
maintenance
costs, but all
investors' names are usually on the mortgage. There are companies that
can help you find such an investor if your family can't participate.
- Get
help from your family. Perhaps a family member will loan you money for
the down payment and/or act as a cosigner for the mortgage. Lenders often
like to have a cosigner if you have little credit history.
- Lease with the option
to buy. Renting the home for a year or more will give you the chance to save
more toward your down payment. And in many cases,
owners will apply some of the rental amount toward the purchase price. You
usually have to pay a small, nonrefundable option fee to the owner.
- See if
you can qualify for a short-term second mortgage to give you the money to
make a higher down payment. This may be possible if you have a good
income and little other debt.
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Choices That Will Affect Your Loan
- Mortgage term. Mortgages are generally available at 15-, 20-, or 30-year
terms. The longer the term, the lower the monthly payment if the same amount
is borrowed. However, you pay more interest overall if you borrow for a
longer term.
- Fixed or adjustable interest rates. A fixed rate allows you to
lock in a low rate for as long as you hold the mortgage and is usually
a good
choice if interest rates are low. An adjustable-rate mortgage (ARM) is
designed so that interest rates will rise as interest rates increase;
however they usually offer a lower rate in the first years of the mortgage.
ARMs
also usually have a limit as to how much the interest rate can be increased
and how frequently they can be raised. ARMs are a good choice when interest
rates are high or when you expect your income to grow significantly in
the coming years.
- Balloon mortgages. Balloon mortgages
offer very low interest rates for a short period of time - often
three to seven years. Payments usually cover only the interest, so the
principal owed is not reduced.
However,
this type of loan may be a good choice if you think you will sell
your home in a few years.
- Government-backed loans. Government-backed
loans, sponsored by agencies such as the Federal Housing Administration
(www.fha.gov) or
the U.S. Department
of Veterans Affairs (www.va.gov), offer special terms, including
lower down payments or reduced interest rates - to qualified buyers.
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