Being able to make a down payment on your new home has several advantages: A certain amount of money down might qualify you for a better, less expensive mortgage program and will position you better in the long run should the market swing down, as we have experienced it between 2007 and 2011. How does a potential homebuyer today come up with enough money for the down payment and closing costs? The amount of money you have available can greatly limit or increase your purchasing power. Of course, it’s a no-brainer to save the money yourself. Loan programs such as FHA, VA, CHFA or city, county, state grants can help. Here are some additional ways to accumulate the necessary funds that are acceptable to most lenders. However you decide to accumulate your downpayment, make sure you are fully aware of any tax consequences – talk to your CPA or adviser. After you have determined how much money you’ll need as a down payment, it’s time to look at more options to collect:
1. Have your parents/family member give you the money as a gift.
Documentation will be required to prove that the money is actually a gift and not a loan. Any taxpayer is permitted to give up to $14,000  per year to another person without having to pay a gift tax. Read more about gift/inheritance taxes here. Technically, you mother can give you $14,000 and give $14,000 to your spouse, that you can then use as a down payment on your new home. Your father could do the same – this would increase your downpayment to $56,000 – not bad and your payments would be very low.
==>Talk to your local lender to get pre approved and learn how much of a down payment you actually need.
2. Borrow against your 401K or insurance policy
You can cash out your 401K, but you will be subject to withdrawal penalties and taxes. Depending on your tax brackets, you’ll have to look at this withdrawal as a loan in the amount of your taxbracket at 15%,20%,25% or more. If you borrow against it, you might save on tax but this will add to your loan to debt ratio. It is important to do a lot of research before you chose this option.
3. Sell or borrow against an asset.
Selling an asset such as a car or motorcycle can help increase the amount of money you have available. Borrowing against that item would also be an option and is acceptable.
4. Obtain a low point or ZERO point loan
This will reduce the amount of your closing costs substantially. In some instances, the lender can also pay all or part of your non-recurring closing cost.
5. Ask the seller to pay for all or part of your closing cost.
As your Real Estate Agent, I can assist you with this when you make an offer on a home.
6. Check into city, county down payment assistance
If the seller does not need all of the equity in their property or has certain tax deferral needs, they might consider carrying some of the financing which will reduce the amount of your down payment.
7. Close late in the month to reduce the amount of prepaid interest on your loan
8. Use the equity in another property
9. Seek additional income -even if only temporarily
10. Special offers through lenders or other professionals, unions or organizations
Ask your real estate agent (719-321-0800) if they are aware of any special offers through lenders, title companies and so on. Heritage Mortgage Bank currently offers special incentives up to $10,000 assistance in down payment and closing cost. Check the organizations you are a member of for special programs, grants and offers.
Can you reduce your monthly expenses? Take a look at your monthly costs and expenses. Then make a plan that lasts at least a few months on how you would like to spend you money, basically make a budget and stick to it. You’ll be surprised how much money you can save if you trim down just a few months. It’s not easy, but so worth it.