What Happens After You Apply?

Down payment, Income and Employment

These are the big hurdles you have to deal with after you apply for a loan.

The Down Payment Hurdle

It's a Big Deal. A down payment plays a major role in qualifying for your loan. The amount you put down affects how much you can borrow and determines your monthly mortgage payments. From a lender's perspective, the more money you put down the better because it reduces their risk of foreclosure. From your perspective, a 20% down payment means you'll borrow less, pay less interest over the life of the loan and get a lower monthly payment. Unfortunately, nothing puts a bigger dent in your home-buying budget than the down payment. Few first-time homebuyers can fork over that much cash.

Don't Get Scared—You Have Options

There is hope. Ask your lender about Fannie Mae, the major secondary mortgage company. Fannie Mae makes loans available through local lenders requiring as little as 3 percent down. The Fannie Community Home Buyer's Program offers various plans that allow family members to gift or loan the funds for the down payment. Another mortgage lets you put 5% down and pay interest only for the first year, which means you get to deduct the entire monthly payment from your taxes. FHA-insured loans require a maximum of 3% down, if you meet the program's guidelines. Zero down-payment loans are available from the VA for veterans and active military personnel.

Negotiate for a Better Deal

Remember that everything in the sales contract is negotiable. You can ask the seller to cover points and closing costs, leaving you more cash to cover the down payment. Most mortgage lenders let sellers pay discount points, loan origination fees, and settlement costs up to at least 3 percent of the home's value.

Get a Loan

If you have assets you can borrow against, you can use a loan to meet your cash requirements. However, remember that the loan must be secured and that the repayment amount will be counted in your debt ratio, which will affect the amount you'll qualify for on your home loan.

Take a Look at Nonprofits

The National Association of Housing Partnerships (NAHP), a nonprofit organization, offers a no-down payment loan where you pay only half a percentage of the loan value at closing. The Nehemiah Progressive Housing Development Corp. makes a gift of the down payment if you come up with 1% of the purchase price for certain items such as the appraisal fee, credit report and hazard insurance. The Nehemiah loan is only available as a Federal Housing Administration (FHA) loan (but it receives no government subsidies). Check with FHA or local lenders for income guidelines on these programs.

Ask Your Boss

Surprisingly, some companies offer payment of closing costs as an employee benefit. It can't hurt to ask.

What if you don't Qualify? Read On!

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