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Ask The Broker With Peter G. Miller: Money matters

Question: We would very much like to buy a house, but with the cash requirements we will never be able to afford one. In our area for a $400,000 home we would need $14,000 for a 3.5 percent down payment, $6,000 for closing costs, $8,000 for a deposit and probably $1,000 for a rental truck. We don’t have $29,000 so how can we ever buy a home?

Answer: You have allocated $14,000 for a down payment, 3.5 percent of the sale price. You have also figured that you will need a 2 percent deposit to go with a purchase offer, $8,000.

Good news. You’ve double counted.

When you make a purchase offer on a property it’s expected that you will include a deposit. The purpose of the deposit is to assure that you will go through with the transaction. In this example you have an $8,000 deposit. If the offer does not go through because of a contract contingency such as the need for a satisfactory home inspection you get the deposit back. If you do not fulfill the contract because you change your mind you can loose the deposit. However – and most commonly – if the transaction goes through, the $8,000 deposit is a credit to you at closing. In other words, you subtract the $8,000 from the $14,000 down payment requirement.

Instead of $22,000 for the deposit and the down payment you instead need $14,000. However, you may be able to do even better.
First, there are thousands of buyer assistance programs across the U.S. Check with local lenders or go to Down Payment to get started.

Second, not all loan programs require 3.5 percent down. For example, Freddie Mac has its Home Possible® Advantage plan while Fannie Mae offers the HomeReady® program. Both require 3 percent down. In your case that saves $2,000 in cash.

Third, there are lender grant programs that may allow you to buy with 1 percent down. However, you have to look at all the costs for such financing. For instance, is the interest rate higher? What about up-front fees and charges?

Fourth, deposits are negotiable and you don’t have to put up a big amount with your offer, though many brokers will argue that a bigger deposit gives you a “stronger” offer. Maybe yes, maybe no, depending on the particular transaction and demand in your local market.

Peter G. Miller is author of “The Common-Sense Mortgage.” Have a question? Please write to

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