Generally, when you buy a home, you are expected to make a down payment. Your down payment reduces the amount that you borrow, and helps you start out with equity in your home. However, in some cases it is difficult to come up with the money you need for a down payment. The good news is that, in some cases, it’s possible to get help from your lender.
Prior to the financial crisis 2008, one of the common types of down payment loans was the 80/20 loan. Basically, the lender gives you a loan of 20% of the purchase price, and that serves as the “down payment.” The remaining 80% is then borrowed as well. The smaller loan, though, has a higher interest rate attached to it.
The main advantage to the 80/20 loan is that it provides you with a way to avoid Private Mortgage Insurance, since you are technically putting a 20% down payment on your home. It’s possible to find lenders that offer 80/20 loans, but they are less prevalent in the past.
FHA Down Payment Loan
You can also receive a loan to help meet your down payment requirement for a FHA loan. While the down payment is smaller with a FHA loan, you will still have to pay the FHA insurance if you don’t have a large enough down payment.
Friends and Family Down Payment Loan
While a lender can provide you with a down payment loan, a friend or relative usually cannot. Most lenders will not want you to use a loan from another source as your down payment. With a mortgage loan, it’s possible for you to accept a true gift from a relative for your down payment, but you can’t plan to pay it back. Many lenders require you and the donor to sign paperwork affirming that the money is the true gift.
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