5 Ways to Find Extra Money for a Down Payment

Here's how to find money for a down payment.

In order to buy a home, you need to have a balance of good credit, manageable debt, stable income, and sufficient savings. Maintaining a balance between these four categories is challenging enough on its own, never mind coming up with enough cash to close on your potential new home.

If you’re worried about the credit part, you can see what you can potentially do to improve by viewing your free credit report summary, updated every 14 days, on Credit.com. And, if cash flow is your issue, here are some ways you can find extra money for a down payment.

1. Move in With Family

Having a nearby family member that will let you move in for a little while is a great way to save money on rent. It’s nice to live alone, but saving that $2,500 per month is a financial home run. In exchange for a little less privacy, you can start saving big money in a shorter amount of time than you would have by continuing to pay $2,500 per month. This can yield huge dividends for you in the future and could be the means of collecting the down payment for your new home.

2. Retirement Funds

Did you know that some retirement accounts let you draw from your reserves early in order to pay for your first home? Every retirement account is different, so it is a good idea to contact your human resources department to review your 401K, or a bank/financial adviser to review the terms of withdrawal from your investment account. In most cases, if it is a first home (i.e., you have not owned a home in the last three years), you can borrow from yourself to finance your down payment or cash to close. There can be tax penalties for withdrawing early, so be sure to review your terms.

3. Cash-Out Refinance

If you already own a home, it might be worth considering a cash-out refinance on your current home in order to pay for another one. Fannie Mae and Freddie Mac have recently taken kindly to this approach by changing the equity position in a departure residence to purchase a new primary home. Completing a cash-out refinance on your current home to purchase another is a form of leveraged debt and will allow you to purchase with a stronger offer. Just be sure this makes sense for your finances before you apply.

4. Sell a Home

In a similar scenario, by already owning a home with equity, you can sell your home in order to buy another one. For example, if you have $150,000 of equity in your current home, you can sell and use that equity as a down payment to acquire another. The challenging aspect of this is that these scenarios are contingent upon one house selling. If the buyer backs out of the deal, your ability to secure the house you are in contract for will be at risk.

This method should be approached with caution and only with a real estate agent who can walk you through the ins and outs. Education is key to a successful dual transaction like this.

5. Sell Personal Property

As much as we like our things, it is nice to have a roof over our heads we can call our own. If you have any toys or big-ticket items like a boat, motorcycle or novelty, those can be sold to generate cash for buying a home. In order to use these funds, you need to keep all documentation while selling the item. If you do not have supporting documentation, the cash cannot be used.

If you are looking to see what it takes to buy a home, we recommend talking to an experienced licensed mortgage professional. If you do not have the necessary means to acquire cash quickly or efficiently, talk to your mortgage professional about programs that require little to no down payments or lenders who have down payment assistance available. And, of course, be sure to determine how much home you can comfortably afford (more on how to do that here).

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The post 5 Ways to Find Extra Money for a Down Payment appeared first on Credit.com.

4 Ways You Can Borrow a Down Payment

happy_homebuyers

Planning to buy a home sometime soon? It’s an expensive proposition, and if you need help coming up with a down payment, it’s important to know which sources you can tap to make your home-buying dreams come true. Here are four ways to borrow a down payment.

1. 401(k) Retirement Plans or Liquid Assets

Many 401(k) plans have special borrowing provisions that allow you to repay the amount borrowed with preferential terms. Some 401(k) plans even allow you to avoid penalties buying a primary home, while others have fewer restrictions for first-time homebuyers (defined as someone who hasn’t owned a home in the last 36 months). Every 401(k) plan is different so check for details with your Human Resources department. Additionally, if you have liquid assets, your financial institution may allow you to take a loan against your cash.

2. Home Equity Line of Credit

If you already own a home and are looking to purchase a second home or even an investment property, you can borrow money from a home equity line of credit. This option exists so long as your income and debt picture supports repayment of the line of credit as well as the other monthly carrying costs (taxes, insurance, homeowners association fees, private mortgage insurance, etc.).

3. Cash Out Refinancing

Another way to buy a home is to leverage the value of your current home. Known as cash out refinancing, it can provide you with money equal to up to 80% of the value on your primary home, and a bit less if the home is rental property (70%) or a second home (75%). Your specific scenario might present different loan-to-value restrictions, so be sure to talk to a qualified loan officer.

4. Personal Loan

A cash deposit to your account acquired from a personal loan may be considered eligible only after 60 days of “seasoning.” Seasoning is a banking term that refers to the timeframe funds are in a bank account for use in a mortgage transaction.

Mortgage tip: Banks and lenders want to know that you have the financial capacity to save money for a down payment or to get it from a donor.

Banks, lenders and mortgage brokers need to be able to verify you have the funds to buy a home, and that those funds are legitimate funds in some sort of a bankable paper trail bank account. Money sitting at home in a safe or cash obtained from side jobs can’t be used to buy a home.

Importantly, money given to you as a gift to help with a down payment must come from a legitimate source. Any repayment of gift funds is not a gift. If, for example, a relative is giving you $40,000 to buy a home, he or she will need to provide an executed gift letter stating the money truly is a gift, and provide bank statements showing the ability to donate those funds. Lenders will require this for each and every gift amount. Federal regulations require banks to document all funds used in the transaction. As long as your mortgage lender can substantiate your funds from one of the eligible sources, you don’t need to have lots of cash to buy a home. As a general rule, more income will be needed to offset the mortgage payment when a lower down payment is used to buy a home.

Remember, too, that a good credit score can help you net a competitive rate on your mortgage so you should check your credit before you apply for one. You can do so by pulling your credit reports for free each year from AnnualCreditReport.com and viewing your credit scores each month on Credit.com.

More on Mortgages & Homebuying:

Image: Ridofranz

The post 4 Ways You Can Borrow a Down Payment appeared first on Credit.com.

4 Ways You Can Borrow a Down Payment

happy_homebuyers

Planning to buy a home sometime soon? It’s an expensive proposition, and if you need help coming up with a down payment, it’s important to know which sources you can tap to make your home-buying dreams come true. Here are four ways to borrow a down payment.

1. 401(k) Retirement Plans or Liquid Assets

Many 401(k) plans have special borrowing provisions that allow you to repay the amount borrowed with preferential terms. Some 401(k) plans even allow you to avoid penalties buying a primary home, while others have fewer restrictions for first-time homebuyers (defined as someone who hasn’t owned a home in the last 36 months). Every 401(k) plan is different so check for details with your Human Resources department. Additionally, if you have liquid assets, your financial institution may allow you to take a loan against your cash.

2. Home Equity Line of Credit

If you already own a home and are looking to purchase a second home or even an investment property, you can borrow money from a home equity line of credit. This option exists so long as your income and debt picture supports repayment of the line of credit as well as the other monthly carrying costs (taxes, insurance, homeowners association fees, private mortgage insurance, etc.).

3. Cash Out Refinancing

Another way to buy a home is to leverage the value of your current home. Known as cash out refinancing, it can provide you with money equal to up to 80% of the value on your primary home, and a bit less if the home is rental property (70%) or a second home (75%). Your specific scenario might present different loan-to-value restrictions, so be sure to talk to a qualified loan officer.

4. Personal Loan

A cash deposit to your account acquired from a personal loan may be considered eligible only after 60 days of “seasoning.” Seasoning is a banking term that refers to the timeframe funds are in a bank account for use in a mortgage transaction.

Mortgage tip: Banks and lenders want to know that you have the financial capacity to save money for a down payment or to get it from a donor.

Banks, lenders and mortgage brokers need to be able to verify you have the funds to buy a home, and that those funds are legitimate funds in some sort of a bankable paper trail bank account. Money sitting at home in a safe or cash obtained from side jobs can’t be used to buy a home.

Importantly, money given to you as a gift to help with a down payment must come from a legitimate source. Any repayment of gift funds is not a gift. If, for example, a relative is giving you $40,000 to buy a home, he or she will need to provide an executed gift letter stating the money truly is a gift, and provide bank statements showing the ability to donate those funds. Lenders will require this for each and every gift amount. Federal regulations require banks to document all funds used in the transaction. As long as your mortgage lender can substantiate your funds from one of the eligible sources, you don’t need to have lots of cash to buy a home. As a general rule, more income will be needed to offset the mortgage payment when a lower down payment is used to buy a home.

Remember, too, that a good credit score can help you net a competitive rate on your mortgage so you should check your credit before you apply for one. You can do so by pulling your credit reports for free each year from AnnualCreditReport.com and viewing your credit scores each month on Credit.com.

More on Mortgages & Homebuying:

Image: Ridofranz

The post 4 Ways You Can Borrow a Down Payment appeared first on Credit.com.