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Different Ways to Come Up With the Down Payment on a Home

posted by Stephen Katz @ 5:23 PM
Friday, September 13, 2013

To be successful in purchasing a home today, you will need a down payment of at least 3.5 percent of the purchase price. No more are the days of no down payment alternatives, down payment assistance and seller-offered programs to come up with the money needed to buy a home. Let’s look at the ways you can come up with a down payment to make your deal happen.

401(k)/Retirement Loan: Typically, borrowed funds for a down payment are a no-go, but the exception is a 401(k) or equivalent retirement account (or current home equity line). If you can borrow money from your 401(k) for your down payment, this is accepted for obtaining a purchase mortgage loan. Note: Depending on the terms of your loan, this could be counted as a liability and factored into your debt-to-income ratio.

Gift Money: Gift money is simply that — a gift from family or documented close relationship. The giftor needs to provide a  letter and paper trail for the monies they are gifting for the benefit of the buyer. In other words, they’ll have to provide a bank account showing that they had the ability to gift the money. In short, gift monies cannot be funds sitting at home in a safe.

Sale of a Good: Believe it or not, you can sell a recreational vehicle and use the net proceeds from the transaction as your down payment. Let’s say that you decide to sell your motorcycle for $10,000. You’ll need to provide a full bill of sale — as well as the bank statement depositing those funds, matching the bill of sale — to your mortgage lender. As long as it’s plausible and passes the litmus test and you can paper trail the monies from start to finish, you shouldn’t have a problem using those funds for a house purchase.

Trust Funds, Settlement Awards, etc. : If you acquire a large sum via an inheritance, settlement, lottery winning, trust fund disbursement, family buyout, all of these monies can be used for the down payment as long as the sourcing of the monies is fully documented with no stone left unturned. Matching of the amounts of monies used to the original deposits will be required when it comes time to secure the loan.

Line of Credit: Where a down payment lacks, enter strength in income. You can take out a line of credit or a personal loan, deposit the full funds into your bank account and after two months, the funds will be eligible for use in the transaction.

While a down payment is needed to purchase in the current real estate market, a proactive homebuyer should also have plans for the funds needed for closing costs. The same strategies listed above can also be used to procure funds for closing costs.

Closing costs generally run about 3 percent of the purchase price. So the total funds to close would be 3 percent of purchase price plus 3.5 percent down.

Take time to think ahead, if you don’t have a down payment for a house, or your down payment is coming from more than one source, make sure that you talk to a lender upfront so they can help you navigate the best way to properly support and document your monies used. Doing this in the beginning will save you time and aggravation!

Stephen Katz

(770) 309-0939 (direct) or (866) 742-8400 -- For the past 18 years, Stephen Katz has built a successful business almost entirely on referrals. As your mortgage consultant throughout the home loan process, Stephen will explain the pros and cons of all available mortgage programs and help you choose the financing option that is best suited to your needs. Throughout the loan process, he will keep you informed and will respond quickly to your requests with answers and solutions. Consistently a top producer, Stephen is a Mortgage Bankers Association "Diamond" Award winner, a Georgia Mortgage "Top Gun" and has closed almost half a billion dollars in loans. Put his knowledge and experience to work for you!

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