Other than buyers who are military service veterans, the days of “zero down” are all but gone. Lenders have tightened up many aspects of the loan process from credit scores, property condition and buyers source of funds.
Make a game out saving your down-payment
On conventional loans, a buyer has to have at least 5% of their own money involved to get a home loan. On FHA loans the down payment is 3.5% of the sales price.
Here are four ways some buyers scrape together their first down-payment.
The Bank of Mom & Dad
Getting money from mom and dad is a time-honored tradition, but lenders won’t let you simply borrow the money from the folks, because the new debt increases your out of pocket expenses. The only way that mom and dad can contribute to the home purchase is through a “gift letter.” A gift letter says where the money came from and that it’s a “gift” and no repayment is expected. On conventional loans, the buyer still has to have their own 5% cash down-payment. On FHA loans, mom and dad can gift the entire down-payment of 3.5% of the loan amount.
Borrow the money from your retirement account
The law allows individuals to receive distributions from their traditional IRAs to pay up to $10,000 of first-time home-buyer expenses without incurring a penalty- but you do have to ay the taxes on the money that you take out of the account. This is because you didn’t have to pay taxes on the money when you first put it in the account. Talk to your accountant, lender and/or retirement fund manager to get the most current details on removing money from your retirement account.
Set a Savings goal.
This is most likely how mom and dad and grandpa and grandma got their down-payment. Make a savings plan and then follow the plan strictly. Remember the goal is owning your own home. Try to give up things that cost money and save the money in a spot you aren’t likely to raid in a weak moment. For instance, that latte might cost $3.00 a day and you will save at least $15 a week drinking old fashioned home brew coffee. If you eat lunch at a restaurant, try brown-bagging it for a period time. You can easily save $100 a week eating last nights left overs. Everyone can save a little by making a few sacrifices, and you’ll be surprised how quickly your nest egg will grow!
Ask for money for your wedding gift…
…or Christmas gift, or birthday gift. There are banks who allow you to set up down payment wedding gift registries. Some people will respect that you are “knuckling down” and sacrificing to get your first home.
Ask Sellers to pay some Closing Costs
This article is about saving for a down-payment, but there are closing costs involved and most are negotiable. Your lender and real estate professional can tell you which ones the seller might be able to pay for you, assuming they are negotiable.
