Weighing Down Payment Options | St. Johns Bank
While the best recommendation remains having 20% or more of the value of the property you’re purchasing available for a down payment at closing, that isn’t always possible. In fact, it typically isn’t.
Whether you just haven’t quite accumulated as much in your savings account at this point as you might need or your dream house hit the market and you don’t want to risk waiting, it’s reality. And it’s OK in most cases.
But if you’re applying for financing that requires a more substantial down payment than you can afford or you just want to avoid the hassle of paying private mortgage insurance for years, you do have options.
Here are some of the ways you can reach that 20% threshold and the considerations that come with each.
3 Potential Down Payment Sources
Get a personal loan. This one may seem to make a lot of sense; you’re already borrowing, so why not throw in a bit more? Still, it’s important to remember you’ll have to repay both the mortgage and the personal loan at the same time, so you need to make sure you can afford that each month. Additionally, you should look at the math to see whether the potential savings in mortgage interest and private mortgage insurance are washed out by the cost of interest on the personal loan.
Pros: gets you to the target, relatively easy to secure
Cons: comes with its own payments, may disqualify you for certain loans
Consider a bridge loan. This option, which you can get from St. Johns Bank, is perfect if you’re buying a house before you’ve sold the one you’re in now. It can equip you to make a down payment leveraged against the value of the property you’re selling and can be paid back quickly once you sell the original property.
Pros: quick and easy option for those who already own a house, can be paid off quickly with little interest incurred
Cons: may be hard to repay if your home doesn’t sell quickly or for as much as expected, interest charges
Get it from family. If you’re fortunate enough to have close family members, such as parents or someone you’re engaged to, whose pockets are deep enough and hearts are generous enough to cover you, they can gift you the money you need. Rules on who can loan that money and how that process works vary by loan type, as do limits on how much they can give you. You’ll need to document the specifics of exactly who gives you money and how much both for the mortgage and for the tax man.
Pros: easiest option, no interest or repayments
Cons: requires convincing rich and/or generous family or friends, may be taxable
If you’re ready to buy that home of your dreams, the mortgage experts at St. Johns Bank can help you find the perfect funding for your situation.