Home Loan Center

Calculating What You Need

• About Your Down Payment
• No/Low Down Payment Options
• Saving for Your Down Payment
• Using Home Equity as Down Payment
• Estimated Closing Costs

Your down payment is the core of your mortgage. It affects:

• The lender's decision
• Your loan amount
• Mortgage type
• The size of your monthly payments
• Your mortgage interest rate
• The cash you have available for other moving/furnishing costs
• Down Payment Strategies

1. Put Down More
   The more you put down (the bigger your down payment), the less you'll have to borrow. This means lower monthly payments and lower overall mortgage costs. You will start out with more equity in your home and have an easier time convincing a lender that you're a good risk.
    
2. Put Down Less
   If you tie up all your cash, you may not have enough for moving or first-year homeowner expenses. And don't forget about closing costs! A smaller down payment will cost you substantially more in the long run, but it will increase your current cash flow. If you expect to increase your future earning power, however, it might be the best way to go. Understand the tradeoffs before you devise your strategy.
    
   Anticipate obstacles and get around them before you apply. Some successful tactics:
    
3. Reduce Your Debt
   Being overextended may work against you when you apply. Make do with your car a few more years. Consolidate outstanding balances at a lower interest rate. Take the time you need now to pay down your debt.
    
4. Check Your Credit Rating
   Credit report errors are common, and long-ago notations have a way of popping up when least expected.
    
   Ask a Parent or Relative to Co-Sign Your Loan
   If your credit and assets are a little shaky, a lender may be more accommodating if an established parent or relative co-signs your loan.
    
   Look for Foreclosed Properties that Require Little or No Down Payment
   For do-it-yourself types only! You'll have to put in a lot of extra fix-it work, but you could get a good deal. Even better, lenders and government agencies are often willing to bend over backwards to help ease the financing.

Usually the biggest hurdle a new homebuyer faces is how to scrape together the down payment. However, in today’s market, there are a variety of mortgage options available for those who:

• Have strong current income but not a lot of savings.
• Prefer to keep their assets in higher-yielding investments.
• Are first-time homebuyers whose high rents have left them strapped for cash.
• Have low-to-moderate incomes and few cash reserves.
• Are “upgrade” buyers looking to buy a larger home without large cash reserves.

Keep in mind that if you pay less than 20% as a down payment, you will usually be required to pay Private Mortgage Insurance (PMI). Even if you already have a nest egg, there are many sound reasons why choosing a no/low down payment makes sense.

A no/low down payment:

• Frees up cash for other home buying expenses such as furniture, moving and closing costs.
• Keeps your assets where they are — in higher-yielding investments or current lifestyle expenses (day care, tuition payments, recreational activities).
• Potentially gives you a larger tax deduction.
• Lets you buy right away and start turning rent payments into future equity in a home.

Many banks and mortgage companies offer a variety of personalized loan programs that require small down payments, some as low as 3%, and some which require no down payment at all. Home ownership is considered to be the American Dream; don’t let it pass you by simply because you may not have enough cash for a traditional loan program.

Northwoods Bank offers several products for homebuyers with little cash. One of our Home Loan Center Lenders would be happy to discuss these in more detail with you.

FHA Mortgage — Allows all qualified buyers to take advantage of a low down payment with flexible qualifying guidelines.

VA Mortgage — Permits qualified veterans, reservists and active servicemen and women to secure a loan up to a specified amount with no down payment and flexible qualifying guidelines.

Pay yourself first

Invest your money on a regular basis — for example, every two weeks. It makes sense to “pay yourself first” using these guidelines:

Start today, and make investing a habit. The sooner you have your down payment, the sooner you become a homeowner.
Write that first check to your investment account when you pay your monthly bills. You’ll be surprised how quickly this money could grow.

Set up an automatic savings plan. Money is automatically deducted from your salary or checking account and placed into an investment account that you manage.

Invest wisely
History has shown that common stocks have provided higher returns, over time, than any other financial instrument. You should try not to focus on the day-to-day fluctuations, but look at how the stock market has performed, over time. However, stocks have a higher level of risk in comparison to other securities. Keep in mind that past performance is no guarantee of future results. Make sure that you feel comfortable with the level of risk, and a long-term investment goal.

Consider investing in a variety of different asset classes, such as stocks and bonds. This way, if one of them performs poorly, you may avoid the pitfall of having put all your eggs into one basket.

Consider withdrawing from IRAs and 401(k)s
Did you know that you may be able to get money from your tax-deferred and retirement accounts to buy your first home? Check out these two possibilities to help you with your down payment:

You can withdraw up to $10,000 from your IRA, over the course of your lifetime, to purchase a home if you are a first-time homebuyer. Keep in mind that you still pay taxes on the withdrawal, but you aren’t hit with the 10% penalty imposed by the IRS as long as you meet certain restrictions.

Retirement accounts, like your company’s 401(k) plan, may allow you to borrow up to 50% of your vested assets — and spread the loan repayments over several years. This can be a boon for first-time homebuyers.

Remember to consult your tax advisor before making any tax-related investment decisions. Investing for your future takes time, so don’t become discouraged. Keep your eyes on your goal, and continue investing regularly.

Home equity is determined by the fair market value (or appraised value) of your home, less the balances of mortgages or liens against it. If your home is worth $200,000 and you owe $120,000 secured by liens against your home, then you may have $80,000 of available equity, which you can use however you wish. And remember that the interest you pay on a home equity loan may be tax-deductible.

If you tap into your equity to purchase another property for yourself, you may realize the following advantages:

Savings. You may be able to avoid paying for private mortgage insurance on your second property if you make a down payment of more than 20% on it. This could represent a sizeable savings.

Speed. You can act now, rather than waiting for your savings to build up in order to make a down payment for a second property.

In addition, some homeowners choose to help their children buy their first home. Besides the feeling of satisfaction you get by helping your children accumulate assets, such gifts may be in whole or in part a nontaxable event. Consult your tax advisor for specific advice regarding tax implications of such gifts.

While many homeowners may opt for a home equity loan to use for the down payment, if you have a sizeable equity you may want to consider a line of credit instead. With a home equity line of credit you could use a portion of the credit line for the down payment and access the remainder over time to pay for home repairs, remodeling projects or other expenses. Of course, you only pay interest on the funds that you’ve actually withdrawn from the credit line.

Your home equity represents a wonderful source of cash. Take advantage of it, and put it to work for you.

1. Northwoods Bank Fees

Origination Fee
This is a one-time administrative and processing fee that Northwoods Bank charges to process your application.

Discount Points
A “point” is a dollar amount equal to 1% of your mortgage loan.

You can choose to pay discount points up front to reduce or discount your interest rate. Paying more up front will reduce your monthly payments and your interest expense over the life of the loan. The longer you plan to stay in your home, the more this might be a financially sound plan.

Paying points will subtract approximately 0.25% for each additional point to the rate of your mortgage. Factors to consider:

• How much can I afford to pay up front?
• How much can I afford each month?
• How long do I plan to stay in my new home?
• What are the tax ramifications of my decision? (Up-front discount points, origination fees and monthly interest payments may be tax deductible. Ask your tax advisor what would be best in your case).

2. Interim Interest
This is your mortgage interest rate calculated from the time your mortgage is activated at closing until the end of the month.

3. Third Party Fees
There will be fees for third-party services performed in the processing of your mortgage, insurance payments and funds held in escrow (funds belonging to you that are held by Northwoods Bank for certain recurring costs such as real estate taxes). Third party costs may include:

• Your attorney fees
• Your lender’s attorney fees
• Title search fee and insurance
• Appraisal fee
• Credit report fee
• Mortgage recording fee
• Survey fee
• Homeowner’s insurance
• Closing Fee
• Underwriting & Documentation fee preparation fees
• Flood certification fee
• Miscellaneous courier and transaction fees
• Escrow account funds (often these are split with the seller)
• Private Mortgage Insurance (insurance protecting Northwoods Bank against loss in case of loan default and usually required from buyers with less than 20% equity)

Why It’s Important
Your down payment is the heart of your mortgage.

It affects:

• The lender’s decision
• Your loan amount
• Mortgage type
• The size of your monthly payments
• Your mortgage interest rate
• The cash you have available for other moving/furnishing costs