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Home > Home Buying Tips > Find the Money for the Down Payment on a Home

Find the Money for the Down Payment on a Home

One of the biggest impediments for many first time home buyers is coming up with the many thousands or even tens of thousands of dollars needed for the typical home down payment. With the average home costing hundreds of thousands of dollars in most markets, it can be very difficult to come up with a 20%, or even a 10% down payment.

It is, certainly, possible these days to get a mortgage for the entire purchase price of the home, but this can be a dangerous strategy, particularly if home prices stagnate or decline. Borrowing 100% of the purchase price of the home leaves the homeowner with no equity to fall back on, so potential home buyers should strive to come up with at least a 10%, and preferably a 20% home down payment.

There are a number of ways for first time home buyers to raise the funds needed for the home down payment. Using an FHA home loan is a great way for first time home buyers who is short on funds for down payment as FHA home loan allows home buyers to buy a house with as low as 3% down compared to the typical 20% down payment required by many other lenders. Another strategy many people use is to borrow the home down payment amount from a pension or a retirement fund. This can be a good strategy if the funds are not available from other sources.

If the potential home buyer owns a portfolio of stocks or bonds outside of a retirement plan, that may be a better choice for the down payment. Selling stocks held in a non-retirement plan will allow the money set aside for retirement to continue to grow tax free.

Another strategy that many first time home buyers use is to ask friends or family members for a loan. Many people are reluctant to ask for help, but in many cases, parents or other family members will be happy to help you get started in a home of your own.

If you own other property, such as a rental property, you may be able to borrow against the equity in that property. Alternatively, it may even be possible to take out a personal loan.

Others choose to find a cosigner or an investor with whom to purchase property. This strategy may work better with an investment property than a primary residence, but it can work there as well. Just be careful that you choose your cosigner carefully, since you will be relying on his or her credit as well as your own.

When borrowing money for a home down payment, it is important to remember that any money you borrow will show up on your credit report, and a large amount of outstanding debt could make it difficult to secure future loans.

Obviously, the more you borrow the more you will have to pay back. It is vital to ensure that you will be able to make the monthly payments on the loan for the down payment, as well as the monthly mortgage payments. It is important not to get in over your head. If you feel you will be unable to make the required payments on the mortgage and the down payment loan, you may want to consider buying a less expensive property.

Keep in mind that many mortgage lenders limit the amount of money an individual can borrow. Mortgage lenders use specific formulas to determine how much each person can borrow, based on his or her income and existing debt level.

If you still find yourself strapped for a home down payment, you may want to consider taking in a boarder or roommate to provide some immediate cash flow to finance the down payment loan. If you have an extra room, or better yet, an attached apartment, at your new home, the rent you receive can help finance the regular mortgage payments as well as the down payment amount. (You can list your home for rent here).

Make sure you explore all potential sources of extra money when looking for down payment funds. Many people have big-ticket items they no longer use, and these items can be sold to finance the purchase of a home. In addition, if you are owed money from family, friends and others, now may be a good time to ask for repayment.

No matter where you get the money for your home down payment, it is important to keep all receipts and records. Good record keeping is important to every homeowner, since the interest on mortgages and other housing expenses can be tax deductible. Keeping track of all your expenses will also be very valuable to your tax planning when you eventually sell your home.



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