Just think about it for a second, you are in the market for a home and you finally find “the one.” You know the amount you can afford on a monthly basis, except there is one little problem standing in your way and that is the down payment necessary to secure the loan. Never fear, there are many ways for you to come up with the down payment needed. The down payment is the final hurdle you may need to clear before you can start packing your bags for the next chapter in your life. In the list below, you will see some ways to make this small problem go away quickly, or in some cases it may take some time, but you will be in better shape because of it.
This is one thing when you hear about it you do not want to do this at any cost. One of the most boring things to do is pay off your debt. However, when you think about it realistically, you can see why the benefit is evident. When you are holding a large balance or any balance you are incurring monthly interest charges that make your original purchase cost more money and ultimately takes more money out of your pocket. If you work at paying down your credit cards and ultimately paying them off, you will have all this extra money to save on a monthly basis and put towards saving for a down payment. This solution might take more time but will be worth it in the end. As an added benefit to getting your debt paid off, your FICO score should increase because of this given you have a decreasing debt vs. open credit ratio.
In terms of finding a “quick cash” down payment this could be an option for you. Now there are some adverse effects from borrowing from your 401(k) but the main positive is you can have money in a matter of days or a week’s time. Yes, this is money that is meant for your retirement, but it is in the end your money and you have access to it. If you have a warranted reason, and buying a house is one of them, you are permitted to withdrawal up to 50% of your balance or a maximum of $50,000 which should be adequate for a down payment. You are also required to pay this money back as well with interest. This money is also paid with post-tax dollars while the contributions are made with pre-tax dollars. Yes, it is costing you more, but if buying your home is a priority, then you should have nothing to worry about.
This can also be an option for your down payment if you have money saved and you have not owned a principal residence in the past 2 years. The IRS (Internal Revenue Service) allows for you to borrow against your IRA if this is your “first home,” and you are permitted to use up to $10,000 from your IRA to fund a down payment. Now if your spouse is also a first-time buyer and has an IRA, they are entitled to $10,000 as well. Combined, you can pull up to $20,000 in IRA funds toward a down payment. The IRS also waives the penalty for early withdrawal if you are using the funds to buy a home, so it is a win-win situation, just make sure you pay this money back.
Now not all gifts are treated equally and depending on the loan program, you may not be able to use these funds or will need to wait for the funds to be seasoned in your bank account before you can proceed. If you know you are grandma’s favorite and she would like to give you some money for a down payment in helping you purchase a home, this is fine, but just make sure you know the rules and work with your loan officer to determine if these funds are admissible. Per IRS guidelines the annual exclusion is capped tax-fre at $14,000 so you can receive up to this amount without having to worry about paying any tax on this money received. Also, the gift is not limited to immediate family members but can also be received from friends as well, so the options are limitless to get that down payment secured.
As much as you may not want to, putting in some extra work can pay dividends for your savings and goals of a down payment as long as you make sure you keep these funds in your savings and fight the temptation to spend this. The best way to find a second job is to look to do something you enjoy in your part-time. For example, if you are big into sports, look into becoming a referee for youth sports. You can get certified relatively inexpensively and will make $45-$80 per game you referee. Given you are working with children; these games are normally after work and on the weekends, the time when most people are off anyway. When you can do what you like and make $200-$400 per weekend, your down payment savings can add up quickly.
If there really isn’t a way for you to put together the funds necessary for a down payment, there are some programs designed to help borrowers in your exact situation. There are federal and state organizations, as well as nonprofits whose job it is to help borrowers obtain the funds needed for a down payment. Always be aware as noted in item 4, gifts are widely accepted these days, so using agencies for assistance is a great resource for a down payment.
As a last resort for trying to obtain the funds necessary for a down payment, you can try and sell items that are no longer needed and just taking up space where you currently live. There are plenty of sites out there for you to sell your unwanted stuff whether it is on Craigslist or Facebook garage sale pages, the options are endless. There will almost always be some sort of buyer for the items you are selling. If you have some old video games, sporting equipment, furniture, or anything else collecting dust, clean them up, take some pictures and get them sold. You might not get a lot per item, but after doing a significant amount of sales, you will begin to develop your needed funds for your down payment.
If there is some peace of mind I can offer to fellow borrowers out there is to not be discouraged if you do not have the funds necessary for your down payment. I have given you 7 ways where you can see if you can obtain the funds needed for that down payment on your dream home. When in doubt, the hard work will pay off for you and you will get those funds sooner than you know. If you are interested in a loan officer who can guide you through this process, please reach out to me at 888-900-1020