down loans are (almost) entirely a thing of the past. While many
wanna-be buyers are tucking their down payment pennies away, many of
these folks feel that theyâ€™re missing out on deals in the meantime!
Here are my top 7 tips for coming up with those critical down payment funds:
Know how much you need to save.
We all know that to reach a goal, you have to set a clear target. So,
first things first: figure out exactly how much of a down payment you
actually need. If you have a credit score of at least 620, you may be
able to qualify for an FHA loan that only requires a 3.5% down payment.
(For a $200,000 house, thatâ€™s $7,000.) Check in with your agent and
mortgage broker regarding (a) whether you qualify for an FHA loan and
(b) whether youâ€™ll be able to find a property that works for you and for the FHA within the realm of whatâ€™s affordable for you. Itâ€™s
true â€“ the conservative lending guidelines on FHA loans will limit how
much you can spend, and require you to pay monthly private mortgage
insurance (PMI), if you put less than 20% down. Â But PMI is tax
deductible and eventually goes away. Â So what this really means is that
youâ€™ll more than likely end up with a mortgage payment that you can
easily afford to pay for a long time to come. Â And it might be less
house than you might be able to buy with a higher-down payment, less
conservative loan, but less is more, people. Â Less is more (especially
when it comes to mortgage payments!).
while no-down-payment loans are almost extinct, there is a little tiny
exception for borrowers employed in a certain set of professions:
doctors, lawyers, dentists and C-suite executives of Fortune 500
companies are all potentially eligible for zero down professional loans
offered by a couple of small, private banks. Â These loans do have the
basic credit and income requirements, but they require ZERO down
payment, because these professionals are perceived as posing a very low
risk of foreclosure. Â In some cases, pros can qualify for up to $1
million with no down payment!
Save your dough in a high-interest online savings account.
Regular bank savings accounts are paying right around .10% interest
right now. Â Ally and SmartyPig are paying somewhere between 2 and 3
percent. Â Every little bit helps, right? Sell your junk.
eBay, anyone? Â Not only does selling the stuff you no longer need or
use generate cash to put into the down payment kitty, it has the side
effect of feeling almost like preparation for moving. Clear out your
clutter, make room for your new life as a homeowner, and make a few
bucks at the same time. Â Thatâ€™s what I call a #WIN. Get a side gig
â€“ Blogging, weekend table-waiting, baking, dog-walking â€“ itâ€™s not
overkill to get a second job or start a small side business to help you either pay down your debt or save up toward your down payment.
Borrow it from your city or state. Â The
federal homebuyer tax credit is history, but many state and local
governments still offer incentives for homebuyers in the form of down
payment assistance programs. Most often, these are second mortgages with
very low or no payments for 5, 10 or even 30 years (in Oakland,
California, for example, the down payment loan doesnâ€™t have to be repaid
for 30 years or until you sell or move out). Â And many will help not
just low-income buyers, but also those with moderate incomes, or anyone
buying their first home! Google
<your city> <your state> and <down payment
assistance> to see what your local government has on offer, and what
it takes to qualify. Borrow it from yourself!
Â If you have a 401K or Roth IRA account and some years to go before
retirement, you might be able to tap into it or even borrow against your
own funds for your down payment. Â Currently, you can take up to $10,000
out of your Traditional IRA with no penalty to put toward the purchase of your
first home, but you will be taxed.Â You can take as much as you want out of your Roth IRA contributions with no penalty or taxes, though, and as much as $10K from your earnings penalty-free for your down payment.Â The rules get a little tricky, here, so definitely check in with your tax and financial advisors.
And while you canâ€™t similarly draw from your 401K, many
retirement and pension plans will
allow you to borrow the money against your funds, then repay it to
yourself â€“ at interest. Â Hmmmm, pay your lender back with interest, or
pay interest to yourself â€“ choose you! Â But first, get some advice from
your CPA or financial planner.
Get the gift that keeps on giving.Â Cash gifts from relatives are seen by many lenders as a legitimate resource for down payment funds.Â There are guidelines, though - some lenders require that you put your own money on top of a small cash gift (less than 5% of the purchase price); but will let you use gift money exclusively if the gift is 20% of the home's price or more.Â Also, most lenders require a "gift letter" documenting that the giver is your relative and is not expecting you to pay the money back.
Check in with your mortgage broker for a briefing on gift-money guidelines.
If it seem like a "gift" is a hard thing to come up with - don't dismiss the concept too soon.Â I know more than a few now-homeowners who had no clue where their down payment money would come from until they were reminded about gift money as a strategy, then cashed in long-ignored offers of help from parents, aunts and uncles.Â
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