The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.
5 Clever Ways to Help Pay for Your New Home
Purchasing a home is a significant life decision, and one that can potentially help you secure a more stable financial future. Some of the benefits of homeownership include:
- The potential increase in your home’s value over time
- With a fixed-rate loan, your monthly home costs are predictable and won't go up unexpectedly — like they might if you were renting
- Tax deductions for interest and property tax if you have a home loan
- The ability to customize your home to your tastes
Thanks to low down payment requirements and a variety of alternative funding options, homeownership is an attainable goal. In this article, we’ll cover what you need to know about financing and give you some alternative options to consider when paying for your home.
The Lowdown on Financing
Cash buyers are rare; in 2017, more than 70 percent of homes purchased were financed through a bank or credit union. Because most Americans don't have the total amount of cash needed to purchase a home on hand, it’s expected that most buyers will seek financing. If you're new to the world of homeownership, here are some factors and costs to be aware of when buying a home:
Your down payment is the amount of money you contribute upfront toward your new home. In the past, a 20 percent down payment was expected. While some loans still require 20 percent of the total home value down, other mortgage loans are available with a down payment of as little as 3 to 3.5 percent. Note that if you put down less than 20 percent of your home’s value, you will likely be required to purchase PMI (Private Mortgage Insurance) — the cost of which is typically rolled into your monthly mortgage payment. Don’t forget that closing costs are separate from your down payment and typically cost around 2 to 5 percent of your purchase price.
Types of Loans
There are many types of home loans available for new homeowners and repeat borrowers. Some of the most common include:
- Fixed-rate: Homeowners who plan on staying in their home for a longer period of time may benefit from a fixed-rate home loan, which offers a single interest rate for the life of the loan.
- Adjustable-rate: An adjustable rate home loan provides a low initial interest rate for a fixed amount of time — typically for five or seven years. After that period elapses, the rate may go up or down depending on the home market
- FHA home loan: An FHA home loan (one that is provided by the Federal Housing Administration) allows for a down payment of as low as 3.5 percent of the home price. Buyers with lower credit scores may also be eligible for this loan.
- VA home loan: The U.S. Department of Veterans Affairs provides a home loan guaranty benefit for veterans, service members and eligible surviving spouses. Those who are eligible can receive 100 percent financing options, with no income limits and flexible credit requirements.
- USDA home loan: The United States Department of Agriculture provides home loans to rural property owners, with perks like the potential of zero down payment and low credit score acceptance. If you want to live off the beaten path in Arizona, this may be a good option for you.
A home loan expert will be able to help you match your needs and financial situation with a mortgage that provides the most benefit to you and your family.
Alternative Options: Five Creative Ways to Pay for Your New Home
When you take an honest look at how much you can afford to pay for your home each month, make sure to include all of the related expenses. It’s not just about your loan amount. When calculating your budget, remember that your monthly home expenses include:
- Payments on your home loan principal amount
- Interest payments
- Home insurance payments and PMI
- Repairs and other miscellaneous home expenses you may incur
The good news is that there are a variety of inspired options to help pay for these monthly expenses — beyond getting a second job or spending every waking hour at work to get the overtime pay. Whether you’re looking to supplement your income or pay off your loan earlier than scheduled, here are some creative ideas to help you with your monthly mortgage payments:
1. Rent Space in Your Home
Consider purchasing a home with built-in income potential, such as a duplex or a multi-family property with a guest house. A duplex offers two separate entrances, so you can rent out one space to a tenant without sacrificing your family’s privacy, while a guest house provides even more separation between tenant and landlord.
Some homeowners opt to live in the guest house or smaller apartment of a duplex while renting out the main living area. This allows you to charge higher rent to your tenant, putting more dollars in your pocket (or toward your mortgage). An in-law suite with a private entrance could also be rented out for extra income.
Don’t want permanent tenants? If you have a spare room, a guest suite, or even a comfy couch, renting space through a site like Airbnb or VRBO (Vacation Rentals by Owner) is a great option. You can choose when and how to offer your home to visitors.
2. Get Your WISH Granted
WISH (Workforce Initiative Subsidy for Homeownership) is a grant program that provides a match of up to $15,000 of your down payment funds to homebuyers who qualify. The WISH program is open only to first-time homebuyers, and there are income restrictions to qualify. Contact a mortgage loan officer today to see if you qualify for WISH or other down payment assistance programs.
3. Save Like a Boss
Want to save more toward your down payment, closing costs or your monthly mortgage payments? Improve your financial fitness through positive, consistent habits like these:
- Track expenses — You'll see exactly what you're spending, so it's easier to identify ways to save. Put your savings into an account set aside for your home expenses.
- Create an emergency fund — Make sure your finances can cover other expenses, and include a safety net amount for unexpected costs.
- Make it automatic — Have a portion of every paycheck deposited into your “home” account. You can add extra money you have to the account and possibly make extra payments to pay off your home loan early.
In the early phases of determining how much home you can afford, make sure you choose a payment plan that you can handle. You know your finances best.
4. Get Discounts Where You Can
When you finance your home loan with Desert Financial, there are several ways you can cut your total costs. Rather than finding an outside agent, contact one of the state-licensed pros in our Real Estate Broker program to help you with your home loan search. You’ll nab a closing credit of $500 when you purchase a home with our broker’s help! Contact a mortgage representative today for info on all of our home loan options.
5. Crowdfund Your Home
If you don't really need an extra kitchen set or new bath towels, ask guests at your wedding or birthday celebration to give you cash toward a new home in lieu of gifts. Home loan lenders will allow a certain percentage of your down payment to be paid for through monetary gifts, as long as a gift letter accompanies the funds. The letter must state:
- The gift is not a loan and does not need to be repaid
- How much the gift is
- The relationship between you and the donor
- The type of property and address of the property the gift should be used for
There are also online crowdfunding options like HomeFundMe that enable homebuyers to gather funds from loved ones for a down payment.
Make Your Dream Home a Reality
Buying a home is a big step in your life, and one that can be intensely rewarding. With many home loan options to choose from and a variety of traditional and alternative ways to finance your home, you can begin your journey toward homeownership today.
At Desert Financial, we're committed to helping members achieve their financial and life goals, including purchasing a home. Our dedicated team of mortgage experts will work to get you prequalified and be there with you throughout every step of your homebuying journey. Learn more about mortgage options from Desert Financial here.
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