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Elaine Abercrombie: Down Payment Solutions

There are alternatives for buyers who can't swing paying 20 percent upfront

Elaine Abercrombie
Elaine Abercrombie (Roe Anne White photo)

One way to get the best mortgage terms is to make a down payment of at least 20 percent, which not only would get you a lower rate and monthly payment, but you also would avoid additional PMI (private mortgage insurance) fees, and have “instant equity” in your home.

But what are your options if you can’t manage 20 percent down?

There are many federal, state and local programs that provide first-time homebuyers with assistance and great loan terms. One popular Federal Housing Administration loan is the HUD 203(b), which requires just 3 percent down and rolls the closing costs into the financed amount.

If you’re starting with a fixer-upper, you might consider the HUD 203(k) loan. Traditionally, lenders don’t provide a mortgage until repairs are completed, but buyers can’t start repairs until they own the home. This FHA loan provides the entire amount for the purchase and the improvements, based on an estimate of the home’s value after repairs.

Young first-time buyers could also get great terms if your parents can make the investment and down payment for you. Their good credit will guarantee the best terms, and you can buy them out over time or they can forgive a percentage of the loan each year.

If the federal programs aren’t for you, then the bank of Mom and Dad may be the next best thing!

Elaine Abercrombie, a broker with Abercrombie Fine Homes, is president of the Santa Barbara Association of Realtors. She can be contacted at .(JavaScript must be enabled to view this email address).

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