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Mortgage Questions: Where Can My Down Payment Come From?

adults in a learning centerClass is in session! It's time answer your mortgage questions. Questions about home loans can come from all kinds of home buyers. Whether it's your first home, or you're looking to upgrade as your family grows, the housing market can be daunting to even the most seasoned buyer. The housing bubble burst of 2007-2009 still has many folks a little gun shy. One mortgage question we hear from folks is "Where can my down payment come from?

Other forms of this question include:

  • Can I use a gift for my down payment?
  • Can I use the cash I've been saving up over the last few years for a down payment?
  • Are there loans I can take out for a down payment?
  • Are there grants for first time home buyer down payments?

These are all great questions. Let's dig a little deeper into down payments and options for buying a home to better answer these mortgage questions.


What is a down payment?

A down payment proves a couple of things to your lender. One thing is that you're able to save up money while paying your bills - it's a responsibility factor. Your lender wants to know you can take care of your finances and pay your loan. A down payment also shows your lender that you have at least some "skin in the game." This means you're personally invested in the mortgage loan, which typically means you're less likely to default on your loan. While down payments do not prove these two factors in every case, it's a start.

Down payment amounts vary depending on the mortgage loan option you use to buy your house. For instance, FHA mortgage loans (a common mortgage among first time home buyers) require a 3.5% down payment. For easy math, that means a $100,000 home would require $3,500 from you and $96,500 from your lender. 


 You can also find down payment help for home buyers at the state and local level. Some organizations offer grants or other assistance. For instance, Michigan first time home buyers have a MSHDA grant that could get them up to $5,000 in cash at the closing table.


Are there mortgages with no down payment required?

If you're looking for a mortgage that requires no down payment, your choices are limited. If you're a United States military veteran, you have a VA loan at hand. The other choice for 100% financing is the USDA Rural Development mortgage. These loans allow you to borrow 100% of the money needed as long as you meet the credit and financial requirements, and in the case of the rural loan, the house meets the geographical requirement of "rural." However, even with a no down payment mortgage you'll likely need money at the closing table for things like inspection fees and funding your escrow account. 

You can download the "Get Mortgage Ready Guide" to help explain more about the mortgage process - even if it's not your first home. You can also talk to a loan consultant about mortgage pre-approval. Whatever you need, we're here for you.


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More mortgage questions? Ask away in the comments section below. Maybe your question will become another article to help other home buyers!


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