First Time Homebuyer - Top Sources for Down Payment

First Time Homebuyer Information & Education

Top Sources for Down Payment

Top Sources for Down Payment - With home prices souring in the last several years, it has become harder to find the recommended 20% for down payment when purchasing a home- even in a cooling market.

Do not despair- there are actually many several sources that you could use to help with your homes down-payment.

One commonly acceptable source of down payment are actually GIFTS from family. In some cases you’ll have to show that you have at least 5% of your own money invested into the deal; mainly because lenders like to see some personal investment, or attachment, to the property. But beyond that, you’ll only have to document the source, transfer, and receipt of the gift funds, along with a gift letter used to document that the gift is, just that- a gift, and that there is no expectation or requirement for repayment of said gift.

You may also qualify to use money from your 401K as a down payment on a residence. However if you take a loan out against your 401K the monthly repayment amount will count against your Debt To Income Ratios (DTI). Make sure and let your mortgage broker know about any 401K loans that you may have taken out so they can structure the loan properly.

Many people will use the money they get back from the IRS from their tax returns to apply towards a down payment on a home. While this will usually not provide you with a big down payment, it can often provide enough of a down payment to possibly help you qualify for a mortgage loan.

Another way to raise funds could be to sale off an asset. Whether it be a collectible, used car, jewelry, or pricey artwork- anything of durable value can be sold and used as a source of funds for closing. You'll simply have to document the sale with a receipt.

You can even use assets for liquid reserve requirements if you're able to properly ascertain and document it's value, like with an insurance policy.

If you a buying a house from a family member you may be able to substitute a gift of equity in place of a typical down payment. A gift of equity, rather than transferring cash from the seller to the buyer, transfers any remaining equity in the home as a credit to the buyer. If a house appraises for $100,000 but your relative offers to sell it to you for $80,000, the remaining $20,000 worth of equity may be able to be applied as your down payment. If you are considering using a gift of equity as a down payment be sure to discuss this upfront with your mortgage broker.

One source for a down payment is savings or investment. It can be prudent to wait to buy a home until you have saved enough for a down payment. The higher your down payment the lower your leverage and risk.

Source of Funds For Down Payment - When considering the Source of Funds For Down Payment, remember different lenders have different rules. Generally, Mortgage lenders want borrowers to meet the down payment requirement with funds they have saved because this indicates that the borrower has the discipline to save. For this reason, they may restrict the amount of the down payment that is provided by gifts from family and friends.

In today's aggressive mortgage market 100% financing programs are widely available and you may not have to have a source of down payment funds if your credit score is good enough. However keep in mind that with no down payment you will have slightly higher rates and your PMI payment will be higher than it would be with a down payment.

If you are planning on purchasing a home, please ensure that as early as possible in your process you deposit or allocate the funds for down payment. Keep in mind that lenders will try to determine the source of funds by tracing the funds back to their origins.

If you are getting married and looking to purchase a home, you can set up a registry for down payment funds. This makes for a practical wedding gift and can be documented as down payment funds by your lender. Call Dave Zwiereckiat 440-614-0130 or [e-mail] for more details.

When a lender is sourcing the funds for a down payment, they will be tracking where the money came from and they want to see the money has been in your account for at least the past 60 days. If you have any large deposits in your bank account or your investment account, the lender will probably ask for some form of proof and explanation about where the money came from. If you can not successfully provide them with satisfactory evidence about the source of the funds for the down payment, the lender may not allow this money to be used as a down payment according to their guidelines. Therefore, be cautious with your down payment funds and plan ahead accordingly.

Savings or investments are important source of funds for a down payment. The larger your down payment the lower your risk that you will be negatively impacted by a decrease in home prices.

In today’s passionate work environment making money is very easy, but yet difficult as well. One can work at home and can earn a lot of funds from the internet. You can pay the down payment of your house through credit card as well. Many companies are now offering interest free credit card. An example of this is the american express blue card which offers no interest for the first 15 months and also offers up to 5% cash back. However, most of the companies are those which offer low interest cards. However, one must be aware of the issues like hidden credit card fees. Be careful as it usually takes seven years to remove the bad credit card marks on your credit history.

Information listed above is to be used for educational purposes only and is not guaranteed

Copyright © 2007 First Security Financial Services, Inc. All Rights Reserved... First Security Financial Services is a full service mortgage provider offering mortgage educational tools in addition to hundreds of mortgage programs.