When you decide to go into the market to buy a home you may have a slight shock at the costs that it takes to get you there. All too often buyers find that the funds that they thought would cover the down payment are rapidly depleted by the cost of getting to the purchase with nothing left for the down payment.
This is an issue as old as homeownership itself and there have been many creative ways devised to come up with that crucial lump of cash that gets you into the front door of your purchase.
Down Payment Funding Sources
- Borrow it from your retirement plan
- Savings set aside specifically for down payment funding
- Pay off other higher interest rate debt
- A gift from your family
- Accept a higher interest home loan for negative points Sell other investments
- Get a government backed low down payment loan
The ways to find down payment funding sources are based as diverse as the imagination will allow. However, it comes down to three areas generally: Help yourself with hard work and thrift, get help from people, or work out terms creatively.
Real Estate Thrift
If you have a 401K or an IRA you may be able to borrow funding from it to make the down payment. Any time you have built up a history of saving you will be much better placed to make the big investment.
If you do not have these funds available, there is no time like the present to start. Earn some extra cash and pay off your credit card debts or start saving up to build your down payment funding.
Gifts And Legacies
Your closest family is the most likely source of gifts as funding. Your parents may consider it for a tax break or just because they want you to establish a new branch of the family.
Talk to your bank officer or other loan professional, they make a living finding ways to make new business happen. Your home loan might even fund your cost or down payment by having no point or negative points that give cash at closing. Another alternative from lenders is to take out a smaller second loan that pays part of the down payment.
The final institution is the government, through programs such as FHA and the Veterans administration. These types of loans, for those who qualify can be low cost and low down payment, The VA even allows for terms with no down payment.
Will Cashing In Retirement Savings Prove Smart Long Term?
If you want to get the optimal home loan of 80% LTV, you need to come up with some cash! Retirement savings is a very tempting source of such funds because buying your own home is such a great investment. However, you may not feel so happy come retirement time. Instead of taking the cash, you might consider borrowing a second loan with your 401K as collateral.
If you are considering the purchase of a home you may either be feeling good about your savings habits or you may not. Although it might not be prudent to cash in your retirement fund, it could be one of the potential sources by which to extend your collateral and get that down payment funding that you need.