Latest news with #downpayment
Yahoo
6 hours ago
- Business
- Yahoo
Are you using gift money for a down payment? Read this first.
Saving tens of thousands of dollars for a down payment can be a challenge, especially with today's elevated home prices and the high cost of living. That's why down payment gifts are becoming increasingly common. According to data from Zillow's 2023 Consumer Housing Trends Report, 39% of home buyers who financed their home with a mortgage in 2023 used money from family and friends as a source of their down payment. This is a 12% increase from 2022. However, before accepting a generous down payment gift from your loved ones, you'll want to understand the rules — including how to use the gift money and document it. Learn more: How much down payment do I need for a house? This embedded content is not available in your region. In this article: What is gift money for a down payment? Who can gift money for a mortgage down payment? Down payment gift rules by loan type How to document a down payment gift FAQs Down payment gift money is cash given to you by someone (usually a relative such as your parents or grandparents) to help you afford a mortgage down payment or expenses like closing costs. There are typically two ways someone can gift money to you for a down payment: sending the funds to escrow or gifting them directly to you. Ask your real estate agent or lender which they recommend for your situation. Read more: The average down payment on a house Gift money for a down payment can't come from just anybody. Here are the rules based on the type of mortgage you use. According to Fannie Mae, gift money for a down payment on a conventional loan can only be provided by: A relative, such as your spouse, child, or other dependent, or any other individual who is related to you by blood, marriage, adoption, or legal guardianship A non-relative who shares a familial relationship with you, such as a domestic partner, fiancé, former relative, or godparent The money cannot come from the house's builder or developer, your real estate agent, or anyone else who would have a personal interest in the home sale. Gift money for a down payment on FHA loans can come from the following sources: Relatives Employer or labor union A close friend A charitable organization A governmental agency or public entity with a program offering financial assistance to low- and moderate-income families or first-time home buyers Again, the gift money cannot come from a person or entity with an interest in the sale of the property, such as the seller, Realtor, builder, or broker. The U.S. Departments of Agriculture and Veterans Affairs don't have many restrictions on who can gift you money for a down payment. The only stipulation is that it can't be from an interested party, like the seller, real estate agent, builder, or house developer. Note that while USDA loans and VA loans don't require down payments, gift money can help you start off with equity. Learn more: How to buy a loved one a house with a Family Opportunity Mortgage Rules and requirements for down payment gifts vary by mortgage program. Here's what they look like. If you're using a conventional loan to buy a house, you can typically accept a monetary gift for part or all of your down payment funds. You cannot accept gift money for an investment property. As with any type of mortgage, you must provide a gift letter. If you're using an FHA loan, you can use gift money for the down payment, closing costs, or housing reserves to qualify for the mortgage loan. To use the funds, you'll need to provide a gift letter, a copy of the withdrawal document showing the gift money came from the donor's account, and your deposit slip and bank statement to prove you received the funds. Depending on how the money was transferred, you might need to include a copy of the certified check or proof of the wire transfer. With a VA loan, you can use gift money to pay for various mortgage-related expenses besides the down payment, including the VA funding fee and other closing costs. However, you can't use gift funds to meet the cash reserve requirements while underwriting is underway. Besides a mortgage gift letter, you'll also need to provide a copy of the donor's funds by check or electronic transfer or a closing disclosure showing receipt of the gift giver's funds. You may also show proof of your deposit. When receiving gift money for a USDA loan, you'll need to provide a gift letter, a closing disclosure proving the receipt of the donor's funds, or a copy of the check or electronic transfer. Check with your mortgage lender for more details on the documents required. Learn more: How to buy a home with a 1% down payment If your family member is gifting you money for a down payment, most mortgage lenders will require it to be documented in the form of a gift letter. The exact contents of a gift letter may vary depending on the type of loan, but in general, the letter should include: The donor's name The donor's relationship to the recipient The donor's mailing address and phone number The actual or maximum amount of the gift funds The donor's statement that no repayment is expected Lenders ask for this letter to confirm that the money is a gift and doesn't need to be repaid. This reassures them that you won't add extra debt on top of your mortgage, which could increase your risk of defaulting on the loan. Read more: How down payment assistance programs work No. Gifted money is neither taxable nor deductible on your tax return. However, the person who gifted you cash for the down payment may be required to file tax forms or even pay taxes, depending on the amount gifted. You can gift money for a down payment without paying a gift tax as long as you stay within the IRS exclusion amount, which is $18,000 for 2024. If you plan to gift more than $18,000, talk to a tax professional about the potential tax implications and any forms you need to fill out. Yes, your parents can gift you $100,000 for a house — but they'll have to file a gift tax return to disclose the gift since it exceeds the IRS exclusion amount of $18,000. Filing a return doesn't necessarily mean they'll automatically have to pay taxes. It just means the amount has been counted toward their lifetime gift tax exclusion. In 2024, the lifetime gift tax exemption is $13.61 million. This means your parents can give up to $13.61 million in gifts over their lifetime to each child without paying gift tax. This article was edited by Laura Grace Tarpley.
Yahoo
7 hours ago
- Automotive
- Yahoo
Buying a new car? Why you might want to abide by the 20% rule
Buying an automobile is one of the biggest purchases many Americans will make in their lives. New car prices have hit record highs, creeping up to an average price of nearly $50,000 in 2025, according to Kelley Blue Book. If you're buying a new car in 2025, choosing the right financing strategy can make a huge impact on your ownership experience and monthly payments. What is the "20% rule," and how can you use it to your advantage when purchasing the car, truck, or SUV of your dreams? Thousands of drivers will finance new cars in 2025. The way you structure your financing plan affects how much equity you have in your new vehicle as well as your monthly, annual, and total payments including interest. A minimum down payment of 20% can make financing deals less expensive in the long run for car buyers. The down payment "reduces the principal loan amount and the interest you're likely to pay" according to Chase Bank. Suppose you're financing a new 2025 Toyota RAV4. If you secure a 60-month (five-year) financing loan with an interest rate of 4.99%, your monthly payments could be as low as $440 a month with 20% down (before taxes, fees, and interest). A 20% down payment on the 2025 RAV4 ($29,2590 before taxes and fees) works out to $5,850. This leaves a principal amount of 80% of the SUV's MSRP ($23,400 plus taxes, fees, and interest). Your monthly payment is your principal loan amount divided by your loan term (60 months in the example above) plus the fluctuating monthly cost of interest on the principal (4.99% annually in the example above). Drivers can save thousands in interest payments by putting at least 20% of a car's total cost as a down payment due to the cost of interest over time. If you want to save even more money on your car loan and are able to manage your monthly payments after a 20% down payment, there are methods to pay the full cost of your car's financing before the end of your loan term. That said, there could be costs associated with paying off your car loan early and it could negatively impact your credit score. If you pay your monthly loan amount and make additional payments on the principal, you can pay off your vehicle before the end of your loan term. This ensures that you will reduce the amount of total interest you pay through financing, but it can have unintended consequences depending on your lender. Ultimately, the best way to insure that you save money on interest when financing a vehicle is to make the largest down payment possible and gain more equity in your car. The "20% rule" is a strategy implemented to reduce the total cost of financing a vehicle, but you can tailor your financing agreement to your individual financial needs and goals. The average auto loan payment was "$675 as of Q1 2025", according to consumer credit reporting company Experian. NerdWallet says the average annual percentage interest rate for new cars is 6.70% for individuals with a credit score between 661-780. Interest rates increase significantly for drivers with lower credit scores (13.22% for 501-600 score). Between rising new car prices and high interest rates, financing a new car is more expensive than ever before. Before purchasing a new car, truck or SUV, drivers should: Assess how much the new vehicle's true cost could be including taxes, fees, and interest Calculate the precise monthly auto loan payment and see if it fits within your budget Consider how a high-percentage down payment could reduce your total financing expenditure Brand-new cars may be fun to own and drive, but they are seldom needed, as used cars car provide sufficient value for more affordable prices. Thanks to depreciation, American drivers can find great deals on used car models that cost thousands less than new car models. So, if you're in the market for a new car in 2025, be sure to triple-check your numbers before making any financial commitment. This article originally appeared on USA TODAY: What is the 20% rule for car buying, why do drivers follow it?
Yahoo
a day ago
- Business
- Yahoo
How much is a down payment on a house?
You don't need to put 20 percent down to get a mortgage, and some mortgages don't even require a down payment. You can get a conventional mortgage with 3 percent down, but with anything less than 20 percent, you'll have to pay mortgage insurance. Making a larger down payment can get you a lower interest rate. Most — but not all — mortgage loans require a down payment, a percentage of the home value you pay upfront. How much you should put toward a down payment depends on the type of loan you're applying for and your financial situation. You might have heard you're required to put down 20 percent on a home, but in truth, you don't have to pay that much upfront. Your down payment size will depend on the minimum amount required for the loan type you're getting as well as how much you have saved for the purchase that you can comfortably part with. For example, if you plan to put down 10 percent on a $400,000 conventional loan, your down payment would equal $40,000. A 3 percent down payment — the minimum requirement for a conventional loan — would come to $12,000. The median down payment for all buyers as of 2025 was 15 percent, according to the National Association of Realtors. Bankrate insight Among Bankrate users, 42 percent, or nearly 260,000 users, plan to make a down payment of less than 20 percent, according to Bankrate's 2024 Annual Data report. Learn more: What's the average down payment on a house? Loan type Minimum down payment Conventional conforming loan 3 percent Jumbo loan 10 percent FHA loan 3.5 percent VA loan None USDA loan None Second home or investment property 10-25 percent The down payment requirements for a conventional loan on a primary residence vary depending on the lender, the borrower and the property type. For example, first-time homebuyers and buyers with low to moderate incomes could qualify for a fixed-rate conventional loan with a 3 percent down payment. However, you may or may not qualify to make your lender's lowest offered down payment. The amount you must put down will depend on your: Credit score Debt-to-income ratio (DTI) Savings and other assets House of choice Whatever the minimum required down payment on your conventional loan, keep in mind that if you put down less than 20 percent, you'll have to pay for private mortgage insurance (PMI). However, once you reach 20 percent equity in your home, you can request that your lender remove PMI from your bill. Jumbo loans are a specific type of conventional mortgage for high-priced properties. In 2025, homes that cost more than $806,500 in most markets will need a jumbo loan, though in high-cost areas, the limit may be as high as $1,209,750. Because of their size, jumbo loans typically require 10 percent down or more. FHA loans require a minimum down payment of 3.5 percent with a credit score of at least 580. If you have a credit score between 500 and 579, you'll need a 10 percent down payment. No matter how large your down payment on an FHA loan, you'll be required to pay mortgage insurance premiums (MIPs). There are two types of MIP: an upfront MIP paid at closing that's 1.75 percent of the loan amount, and an annual MIP that's added to your monthly mortgage payment. The annual MIP is based on the size of your down payment, your loan amount and your loan term, but it ranges from 0.15 to 0.75 percent of your total loan amount. If you put down 10 percent or more, and you took out your FHA mortgage after June 3, 2013, this annual MIP can be removed after 11 years. Otherwise, you'll pay this expense for the life of the loan. The VA and USDA both back zero-down payment loans for qualified homebuyers. VA loans are available to qualifying members of the armed forces, veterans and their surviving spouses. USDA loans, on the other hand, are available to borrowers purchasing homes in designated rural areas. The USDA has maps on its website that show eligible areas. Neither loan program requires mortgage insurance. With VA loans, you'll pay a one-time funding fee, which ranges from 1.25 percent to 3.3 percent depending on how many VA loans you've had, your loan type and your down payment amount. USDA loans have an upfront guarantee fee of 3.5 percent of the loan amount and an annual fee of 0.5 percent of the average annual loan balance. Your lender will be charged this fee and may pass the cost on to you. If you're buying a second home or an investment property with a conventional loan, the down payment requirement is usually higher than for a primary residence. Second homes typically start at 10 percent, and investment properties can require as much as 15 to 25 percent, depending on your creditworthiness and financial situation. Beyond the requirements, how much you should put down on a house is a personal decision. Consider: Your financial goals: Is your goal to build home equity, or would you prefer to invest that money elsewhere, such as a retirement fund? How long you plan to stay in the house: Is this a starter home, or do you plan on being there long term? If you plan on selling in five to 10 years, you might not be as interested in putting a lot of money down. Your emergency savings: Don't deplete your emergency fund just to make a larger down payment on a house. You'll need the cushion for unexpected expenses. Home needs: If you need to invest in a larger home – for example, if you need home office space or a guest room — you may be stretching your budget and need to put less money down relative to your loan size. If you're downsizing, on the other hand, a big down payment may be easier to manage. Closing costs: Closing costs are a bundle of fees paid when you finalize your mortgage. They can include attorney fees and a loan origination fee, and they usually cost 2 to 5 percent of your mortgage's principal amount. If your closing costs are on the higher end of that range, they may eat into your down payment savings. Costs to upgrade and repair the home: When you move, you'll likely need to pay for repairs or home improvements and buy new furniture or appliances. Your ability to save for a down payment is a good sign you're ready for the financial commitment of homeownership. Here are some clear benefits to waiting until you can make a bigger down payment: Lower mortgage rate: The less money you borrow as a percentage of the home's value, the less risk your loan poses to the mortgage lender. As a result, larger down payments tend to correlate with lower interest rates. More equity: The greater the percentage of your home you own outright, the more equity you have. That can be handy if you're looking to finance a renovation project in the short term. You can tap your home equity through a cash-out refinance, home equity loan or home equity line of credit (HELOC). Lower monthly payments: Because you're borrowing less money and you likely have a lower interest rate, you can expect a lower monthly mortgage payment. Cheaper closing costs: The fees you pay to your lender at closing are usually calculated as a percentage of your loan's total value, so if you borrow less, your closing costs will be lower, too. More competitive offer: If you're in a seller's market and competing with several other buyers, a larger down payment can make your offer more competitive. Being able to put up more cash might give the seller confidence that your loan will close. Lower chance of becoming underwater on your mortgage: If you finance too much of your home, and it ends up losing value, you could end up owing more money than your home is worth. Even if you can afford it, making a big down payment on a house isn't always the best decision. Here are some reasons why you may want to put less money down: It gets you in the door: If a down payment is your main obstacle to homeownership, making a lower one could be smart. More money for repairs or renovations: If you're buying a home that needs some investment, and you could theoretically pay for the repairs in cash, you may choose to make a lower down payment. Buying a more expensive home: If you take advantage of a lower down payment mortgage, you could buy a bigger home with the same money you would use to put 20 percent down on a cheaper home. Not draining your savings: By putting less down, you're potentially keeping money in the bank which you can use elsewhere. If you put that money into your house, you might get it back — and then some — when you sell or refinance. Investing it elsewhere: While homes are seen as secure investments, investors may prefer to put their money into the stock market where they could see a higher return. The lower your credit score, the more you may be required to pay upfront toward your home. For example, FHA loan borrowers may have credit scores as low as 500. However, if your score is 579 or below, you'll need to make a 10 percent down payment. If you have a score of 580 or higher, you can qualify to put down only 3.5 percent. With other types of mortgages, a lower credit score may not increase your required down payment, but it is likely to increase your overall costs. If you qualify for a mortgage, you'll typically receive a higher mortgage rate than a borrower with a lower credit score — and that raises the total cost of your mortgage. Because down payments are expressed as a percentage of the home's sales price, you can multiply the sales price by your target percentage to determine how much you'll need to put down. Here are some examples of how much the down payment on a house would be at different price points: Median home price* 3% down 9% down 18% down 20% down Midwest: $313,300 $9,399 $28,197 $56,394 $62,660 South: $365,300 $10,959 $32,877 $65,754 $73,060 Northeast: $487,400 $14,622 $43,866 $87,732 $97,480 West: $628,500 $18,855 $56,565 $113,130 $125,700 You can use Bankrate's mortgage down payment calculator to get a sense of how different down payment amounts impact your monthly mortgage payment, and the interest you can save by putting more money down. How can I find down payment assistance? Down payment assistance programs help eligible first-time homebuyers — and sometimes repeat buyers — with low to moderate incomes. Assistance can come from a government agency, a nonprofit or even your mortgage lender. It might include a forgivable or deferred loan, a grant or a matched savings program. Why do mortgage lenders require a down payment? Your down payment offsets the lender's risk. The more money you put down, the less the lender stands to lose if you default on payments, especially early in the loan term. Down payments on government-backed loans tend to be lower because the loan is at least partially guaranteed by a federal agency. When do I make my down payment? Down payments are typically made in two steps. First, you'll deposit a portion of your down payment — typically about 1 percent of the home price — as earnest money shortly after the seller accepts your offer on the home. You'll make the rest of your down payment at closing, along with paying your closing costs. This total amount is referred to as your cash to close. Can you buy a house without a down payment? Yes, mortgages backed by the VA and USDA are available without a down payment. Some commercial lenders or local credit unions may also offer no-down-payment mortgages. What other costs should I anticipate when buying a house? In addition to the down payment, you'll also need to pay closing costs, which usually total between 2 and 5 percent of your loan amount. Your lender might also require you to prove that you have reserves. This means you have enough money in the bank to cover a couple of months' worth of mortgage payments.
Yahoo
3 days ago
- Business
- Yahoo
US Homebuyers' Down Payments Drop for First Time in Nearly 2 Years, Redfin Says
US homebuyers' down payments declined for the first time in nearly two years as the housing market h
New York Times
12-06-2025
- Business
- New York Times
How Long Did Mom and Dad Save for Their Down Payment?
With each new generation of home buyers, housing prices rise — and so does the time it takes to save enough money. Between 1970 and 1985, a typical American family could save 10 percent of their income for about five years and accumulate a 20 percent down payment on a median-priced existing single-family home, according to a New York Times analysis of income and housing-price data from the U.S. Census Bureau and the National Association of Realtors. The analysis used the census definition of family income, which includes income of family members 15 or older living in the household, but not other members of the household, such as roommates. As of 2023, the year representing the most recent census data for income, it would take nearly eight years, the data shows. A major reason for the discrepancy is that home prices have increased at a faster rate than family income. And in recent years, a shortage of homes has led to greater price increases. In 2023, the median sale price of an existing single-family home ($394,100) was about four times more than the median family income ($100,800). That gap is nearly twice as wide as it was in 1970, the data shows, meaning that many American families — even those with above median earnings — will struggle to keep up with prices. It's important to remember that the gap may be a lot wider depending on where you live. In New York City, for example, the median home price according to Zillow is $872,667. According to the census, the median family income is $90,619. At those levels, it would take a family 19 years to save up a 20 percent down payment. Loans that allow lower down payments exist for some, including first-time buyers and veterans, but qualified borrowers still need to manage the resulting higher monthly payments. Reaching 20 percent of the purchase price can be helped by salary increases or depositing money into high-interest savings accounts. Earning 5 percent interest can cut the time it takes to save for a down payment by a year. But it would still take two to three years longer than it did 40 or 50 years ago. Saving For a Home The rise in median home prices has outpaced that of median earnings, so saving for a down payment takes a lot longer than it used to. Median family income Median sale price of existing homes Years of saving Year 2023 2020 2015 2010 2005 2000 1995 1990 1985 1980 1975 1970 $100,800 $84,350 $70,700 $60,240 $56,190 $50,730 $40,610 $35,350 $27,740 $21,020 $13,720 $9,867 $394,100 $300,200 $223,900 $173,100 $219,000 $147,300 $117,000 $97,300 $75,500 $62,200 $35,300 $23,000 7.8 7.1 6.3 5.7 7.8 5.8 5.8 5.5 5.4 5.9 5.1 4.7 Median family income Median sale price of existing homes Years of saving Year 2023 2020 2015 2010 2005 2000 1995 1990 1985 1980 1975 1970 $100,800 $84,350 $70,700 $60,240 $56,190 $50,730 $40,610 $35,350 $27,740 $21,020 $13,720 $9,867 $394,100 $300,200 $223,900 $173,100 $219,000 $147,300 $117,000 $97,300 $75,500 $62,200 $35,300 $23,000 7.8 7.1 6.3 5.7 7.8 5.8 5.8 5.5 5.4 5.9 5.1 4.7 Sources: U.S. Census Bureau; National Association of Realtors By The New York Times
