Although cheaper prices and record-low mortgage rates have made homebuying increasingly attractive, tight lending standards continue to keep consumers on the sidelines. And while a beefed-up FICO score and documentation requirements may have slowed the process, it’s the pile of cash needed to secure financing that prevents many would-be buyers from becoming homeowners.
Here are some ways consumers can get their hands on the down-payment cash they need to purchase a home.
VA, USDA: Veterans and active duty personnel, as well as some members of the National Guard and military reserves, can qualify for zero-down-payment mortgages through the U.S. Department of Veterans Affairs. Such home loans are made by private lenders but backed by the agency. Although participants in this program must pay a so-called funding fee, its costs can be rolled into the loan. Closing costs, meanwhile, can be paid by the seller.
State Programs: Consumers can also get down-payment assistance through their state housing finance agency. Although offerings vary by state, such agencies can help first-time buyers by providing grants, subsidized home loans and other programs. To find out if you qualify for similar assistance, contact your local state housing finance agency.
FHA: Borrowers who aren’t eligible for zero-down-payment mortgage programs can still obtain low-down-payment home loans through the Federal Housing Administration. The FHA is a federal agency that insures private lenders against default. Qualified borrowers can access FHA-backed mortgages for as little as 3.5 percent down. To see if you qualify, contact an FHA-approved lender.
Gifting Cash: If you don’t have enough cash on hand, a good first step is to see if anyone close to you does. Gifts from parents or other family members have long been a source of down-payment cash for young couples or first-time buyers. Gifts have to actually be documented as gifts. You must get something (in writing) from each of those donors that says there is no obligation to pay back the money. Be aware, however, that cash gifts from a single source exceeding $13,000 per individual, or $26,000 per couple, are subject to federal taxes.
Tap Your IRA: Certain homebuyers can use funds from their IRA to cover down-payment costs without incurring the 10 percent early withdrawal penalty. Individuals who are under age 591/2 and have not owned a home within the preceding two years can withdraw up to $10,000 penalty-free from their IRA to put toward a real estate purchase. The cash can be used for acquisition, financing or closing costs . Retirement savings, however, should not be the first place you look for cash. Only take money from your IRA after exploring all alternatives.
Savings Plan: Although it might take a little time and discipline, an old-fashioned savings plan can be a great way for consumers to put together enough cash for a down payment. For assistance in creating a savings plan, consider reaching out to a certified credit counselor.
Second Job: Additional income, of course, can also help would-be buyers save enough cash for a down payment. But with a high national unemployment rate, such work may be difficult to find. Still, it’s worth seeing if there is any freelance work you might be able to take on, or checking with your friends who work in retail to see about any part-time openings or seasonal work.
Hopefully this article has spurred some ideas for you come up with down-payment money if you’re short on cash and wanting to buy a home. Let us know if this article helped you. Use the comment link below to give us your feedback.