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Tuesday, January 17, 2017

Greetings Thrifty Friends,

Spring and summer are the most popular times to buy a home. That means if you are thinking about buying a house, townhome or condo this year you should be planning right now. And the biggest part of buying a home is finding the money, money, money.

A 20 percent down payment is still considered a good idea, especially after the housing bubble collapse, and many banks will be looking for it for a conventional loan. But there are ways to get help with it or to get around it.

Keep pinchin' those pennies,

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* When people can't afford a big down payment, they often turn to Federal Housing Administration (FHA) loans, which make up 22 percent of all mortgages in the U.S. With a FHA-backed mortgage, you can put as little as 3.5 percent down. Interest rates are lower and buyers with less-than-perfect credit can still get approved.

The downside of an FHA loan is mortgage insurance, which protects your lender in case you default on your loan. You will pay 1.75 percent of the home's value up front, along with a monthly insurance premium. And you are stuck with that premium for the life of your loan (unlike a conventional mortgage where you can cancel mortgage insurance once you have enough equity in the property). However, you may be able to refinance your FHA loan and get out of paying mortgage insurance once you have sufficient equity in your home.

* Buyers who want to avoid PMI but can't afford to put 20 percent down may consider a piggyback mortgage, or taking out a second loan to cover part of the down payment. You might have a conventional mortgage for 80 percent of the home's value, a second piggyback mortgage for 10 percent of the home's value, and a 10 percent down payment. The second mortgage is really a home equity line of credit. However, you need very good credit to get this kind of loan, and the bid drawback is the interest will usually be higher and may fluctuate with market rates.

* Down payment grants help low-and middle-income Americans bridge the gap between their savings and the amount needed for a down payment. In some cases, you can qualify for thousands of dollars in assistance. First-time buyers in Illinois can get $7,500 in down payment help. Ohio's Your Choice! Down Payment Assistance covers 2.5 percent or 5 percent of a new home's purchase price. Many other states and some cities have similar programs.

You will need to meet income and purchase price limits to qualify for help through most down payment assistance programs, but the limits are often higher than many people realize.

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