Purchasing a home today is becoming increasingly difficult. Not only are the mortgage lenders continually tightening their credit requirements, they are now requiring up to twenty percent down payment for a traditional mortgage. That is right, for a $200,000 house, you may be required to come up with $40,000 cash for your down payment, and that does not include all the other closings costs that you will be required to pay. In Texas, the average closing costs for purchasing a home is $4,998. So, for a traditional mortgage loan you would be required to have almost $45,000 to cover the down payment and closing costs.
Even if you qualify for a Federal Housing Authority insured loan (FHA loan) and only have to put three and a half percent down or $7,000 for your down payment for the same $200,000 house. Then you have to pay for your closing costs, which can be up to $10,00 – $15,000. Even with the governmental assistance, you would be required to pay between $17,000 – $22,000 to get into your new home.
All this probably sounds like an insurmountable amount of cash to come up with, but actually it is allot more doable than you probably think. Purchasing a home from Owner Finance Homes using owner financing will save you thousands on your closing costs, we are covering all closing costs for an owner financed home over $1,200. That is right, you would only $1,200 closing costs to get into your new home.
For the down payment, of course, the most common way to come up with enough cash is to save some each month, putting enough away until you have enough to get into the house of your dreams. Other than saving, there are five ways that can help you come up with enough cash for your down payment that most people do not think about. Here they are:
1. Your Retirement Funds.
Many financial advisers would advise against this, but 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. 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. You can take as much as you want out of your Roth IRA contributions with no penalty or taxes, though, and as much as $10,000 from your earnings penalty-free for your down payment. The rules get a little tricky, here, so definitely check in with your tax and financial advisers.
And while you can’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 – at interest. So the choice there comes down to paying your lender back with interest or paying yourself with interest. That choice should be you! But first, get some advice from your CPA or financial planner. This option might not make financial sense for your particular situation
2. City/County/State Programs.
Some states, counties and cities still offer programs that lend or give home buyers some assistance for down payments. These programs vary widely in scope – for instance, many target buyers with low and moderate incomes, while some seek to help the buyers of foreclosed or fixer-upper type homes. Some don’t have to repaid – meaning they are given as grants and are forgiven entirely if the buyer lives in the property for 30 years, but must be repaid if the buyer sells or rents the home out before the 30 years elapses. The programs pretty much all have some sort of homeowner education component that requires applicants to take personal finance and home ownership preparedness classes before they can receive funds. To learn more, visit your city, county and state websites to learn about programs that might be able to help you.
3. Employer Assistance Programs.
Some companies offer down payment assistance to their employees. Most are Most are government, university, large company and financial industry employers. One example is safety workers: n some areas, safety workers like firefighters and police can have access to down payment grants from their employers if they buy properties in the city where they are on-call as first responders. Also, many large colleges and universities, very large companies and banks and lending institutions offer down payment help and have below-market-rate mortgages set up for faculty members and staffers. Check with your Human Resources department to see if any such program is available to you.
4. The FHA Bridal Registry.
Yes, you read that right. The US Governmental agency FHA allows those desiring to buy a home to register and apply their families’ and friends’ wedding presents towards their down payment. Even thought it is called “bridal registry” program, you do not need to be getting married to use it. You can use the program for any occasion, to celebrate a new birth, graduation gifts, or any other reason that you can dream up.
The FHA Bridal Registry works like a traditional registry, but is more flexible. The registrants visit their choice of FHA mortgage lenders and set up what essentially is a custodial savings account for the sole purpose of funding their down payment. The couple’s (or individual’s) family and friends can either deposit funds directly into the account or give the cash or check to the couple or individual, who then deposits it into the account. The account’s flexibility also goes beyond that of traditional down payment gift rules that are applicable to FHA loans. With the FHA Bridal Registry Program, the only gift documentation required is “lender and borrower certification of the funds.”
5. Family gifts.
Most lenders will allow home buyers to apply gift money from family members toward their down payment – within guidelines, that is. First, the lender will require a letter from the giver verifying that it in fact is a gift and not a loan. (They generally frown upon it being a loan because it would add to the buyer’s debt and change their debt-to-income ratio.) And second, the person giving you the money must be a relative. The reasoning here is that a friend will most likely expect you to repay the money, whereas a relative won’t.
FHA loans will allow the gift to make up any portion or all of the buyer’s down payment, many conventional (non-FHA) loan programs will restrict the proportion of a buyer’s down payment that can come from gift money. The lender may also have specific ways they want to see the money go into and out of your accounts. Before you accept a gift toward your down payment, be sure to check with your mortgage broker or loan rep to be sure that you’re dotting all the right “i”s and crossing all the right “t”s.