Purchasing a house is no easy feat. One of the major elements you need to have in order to purchase a house is to have a good down payment. This will afford your ability to get the lowest interest rate, and the lowest possible payment in relation to your credit score, income, and purchasing price. Here are three creative ways to come up with a down payment.
1. You can borrow the money from your 401k or retirement fund. Most 401k and/or retirement funds give you the ability to borrow on the account to buy a primary home. So long as you don’t already have a loan against your 401k account, this should be a very viable option. Borrowing against a 401k allows you to use the money for a down payment typically up to 70 percent of the total balance of the 401k. You’re borrowing on that money at either 0 percent interest or 1 percent interest bottom line. The interest rate that you’ll get through your 401k, if any, is extremely favorable and the best part about it? It’s pretax so if the payment is $200 a month it’s only going to feel like a 100 per month obligation.
2. Take out a personal loan. Doing this is going to require having high income and low debts to begin with. Provided you have a situation like that, you could take out a personal loan for say $20,000. Deposit all that money in your bank account, then after 60 days the money is seasoned in the eyes of the mortgage company, which allows you to use that loan money to purchase a house since you can purchase now that you have the money in the bank. Now this will factor into your debt income ratio so your income and other monthly expenses including any other loans, car, credit cards or installment loans in your life, for example, all in order to support a new payment obligation.
3. Lastly, donor funds or gift money is always a possibility. While this might be the hardest emotionally to have, “I must stomach the courage to ask a family member for help,” this is a tangible solution. It will work on nearly every mortgage loan program FHA, VA, conventional financing, you name it gift money is allowed. The entire down payment, even closing costs, can be all accounted for in the donor funds. The donor will have to provide a signed gift letter. This would be a good idea to have done and signed prior to going house hunting.
If you’re thinking about purchasing a house and you can afford the mortgage payment, that’s generally the best time to purchase a house. As long as your income is stable, you’re feeling optimistic about your finances, and you have a long-term plan in mind purchasing a home is a sound financial investment.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.