Down Payment Options - Gifts and Loans

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One of the biggest problems facing potential homeowners today is coming up with enough money for the down payment and closing costs. The amount of money you have available can greatly limit or increase your purchasing power. Rather than saving all of the money yourself, there are options that may help. Here are some ways to accumulate the necessary funds that are acceptable to most lenders.

1) Have your relatives give you the money as a gift.

Documentation will be required to prove that the money is actually a gift and not a loan. Any taxpayer is permitted to give up to $14,000 per year to another person without having to pay a gift tax. Technically, your mother could give you $14,000 and give $14,000 to your spouse. Your father could do the same. This would give you $56,000 for a down payment and closing costs. (Note: Unless you are putting at least 20% or will be obtaining a government issued loan, 5% of the sales price must be your own money.)


2) Borrow against your 401k or insurance policy.

You can also cash out your 401k, but you will be subject to withdrawal penalties and payment of taxes. If you borrow against it, the loan payment will be counted as debt.


3) Sell or borrow against an asset.

Selling an asset such as a car can help increase the amount of money you have available. Borrowing against an asset is also acceptable as long as you qualify with the additional debt.


4) Obtain a low point or zero point - loan.

This will reduce the amount of your closing costs substantially. In some instances, the Lender can also pay all or a part of your non-recurring closing costs.

5) Ask the seller to pay for all or a part of your non-recurring closing costs.

Your real estate agent can assist you with this when you make an offer on a home.  Essentially you will be increasing the purchase price by the amount of the closing costs you want them to pay.  That way none of the money is out of the sellers pocket, so most sellers will go along with it.

6) Ask the seller to carry back financing, sometimes called a seller second.

If the seller does not need all of the equity in their property, they may be willing to carry some of the financing in the form of a second mortgage which will reduce the amount of your down payment.

7) Consider different loan programs.

Your loan officer can help you determine the best loan program to suit your needs. There are a wide variety of programs that require lower down payments, even no down payment, and assist with closing costs. There are also city and county down payment assistance programs