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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