First Time Homebuyer Information & Education

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Sources for Down Payment funds

Sources for Down Payment funds - There are many acceptable ways to obtain some additional funds for a down payment and closing costs. First time home buyers and investors are more recently applying for 100% financing. If you have funds for a down payment and/or closing costs, this can help to reduce your interest rate.

There are 100% purchase programs down to a 560 credit score.

Today 100% financing options have become so popular that the down payment on a home is no longer seen as a barrier to owning a home.

Many times the seller of a property is willing to carry a note for ten to twenty per cent of the sales price. This can be used in lieu of a comparable down payment.

You can use money from a checking and/or savings account, 401k money, mutual fund money, money from stocks, cash value of a life insurance policy, gift money from a family member, grants from the city or county, down payment assistance programs and many other sources for down payment money for a home mortgage loan. Depending on the loan type and the lender sometimes the money may need to be seasoned for a couple of months and other times they may just require a copy of the check to make sure it came from you directly. Your mortgage professional will be able to discuss your down payment options with you in more detail in regards to each program that you are interested in.

As stated earlier down payment assistance programs and/or grant programs are a great source for down payment. Especially when dealing with FHA insured loans.

Family is a great place to start. Talk to your immediate family, parents, brothers, sisters, grandparents, etc. they may be able to help you out with a Gift of funds. This Gift is not a loan, and they will often have to fill out a Gift Letter stating where the funds are comming from and how they are related to you. In some cases a bank statement from them may be required to source the funds.

Another source for down payment assistance are grant assistance programs such as the Nehemiah program that you do not have to pay back! You can get as much as 6% down of the final contract sale towards down payment or closing costs.

Many states and cities have bond programs that provide down payments for homebuyers.

A good source for a down payment is money that people with 401k's have already saved. Using money in a 401k for a down payment on a home, if done wisely can be just a good of an investment in their future. Real Estate normally is a low risk investment when compared to other types of investments. Homes usually appreciate over time under normal conditions. This appreciation over time can often outpace the gains made in a retirement account.

There are also programs available through non-profit and/or your local, state or federal government called Down Payment Assistance (DPA) programs.

Each type of mortgage and lender has different guidelines for what are allowable sources for down payments. Consult with your mortgage broker as to what is the best place to start and how to track the funds for approval.

If you are relocating at the request of your employer, find out if your company offers programs to assist in paying for part of the down payment and closing costs. Many large corporations have such programs as employee benefits. Even if you work for a small company that does not have such programs in place, you may still be able to negotiate for some relocation assistance.

The Genisus and Enterprise are two other programs that will help with down payment assistance. Some of the down payment prgrams are set up where they put a lien on your property for a certian period of time such as 5 years. As long as you own the property for this amount of time the lien will be released.

A Secured Line of Credit such as a Home Equity Line of Credit (HELOC) can be used as a source of funds.

Honesty is the best policy when getting a mortgage. Watch out for anyone who asks you to withhold information from the lender. Some home buyers might be tempted, for example, to fudge the facts about the source of their down-payment money. A lender will assume that the down payment comes from savings. If the money comes as a gift or a grant, that fact has to be disclosed -- even if it means the borrower has to pay a higher interest rate or shell out for mortgage insurance.

If down payment money is hard to raise for you and your family, talk to us about 100% financing and seller's concessions.

401(K) for down payment - Many home buyers today are using funds from their employers 401(K) account to provide the down payment obligations on a house. Normally, you cant withdraw money from your 401(K) plan unless you become disables, leave the company, or retire, but many company plans permit certain "hardship withdrawals" in cases where there may be a need to resolve a heavy financial situation, such as the purchase of a principal residence.

It is important to beware of the caveats of hardship withdrawals. There are taxes and penalties involved on the amount withdrawn from your plan. A better way would be to borrow against your 401(K). The interest you pay on the loan goes back into your account, and the money you receive is not taxable as long as its paid back.

A loan from your 401k account is usually at a very good interest rate. This rate will be better than the rate you could get on the second mortgage if you were to try to finance your home purchase with an 80% first mortgage and a 20% second mortgage.

With the large amounts of 100% financing programs available today you should think twice before tapping into your retirement funds. The money you withdraw from your 401K will cost more over the long run then it may be worth in terms of payment reduction. Always consult a financial planner before making this important decision that can affect your financial future.

One thing people donít consider when taking a loan against their 401(k) is the "opportunity cost". If it takes you a couple years to repay the funds that time that you are missing out on the opportunity for growth in those investments, this could easily be 10% or more.

Not only should you speak to a mortgage professional, but also a retirement specialist as well. He or she should be able to tell you if pulling money out of your 401k is the best decision for you or not. It's always best to look at something long term rather than short term. This is why talking to a professional would be best.

One thing to remember if you are going to take a loan out on your 401k to use for a down payment and/or closing costs is that you will need to document the terms of the loan. Your lender will need to know how much the loan is for, how long the repayment period is and what the monthly payments will be on the loan. This loan will go against your DTI (Debt to Income Ratio). Therefore, have your mortgage broker make sure that you will still qualify for the mortgage loan with this figured into your debt ratio before actually taking the loan out.

 

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

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