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How to Get Money for a Mortgage Down Payment

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Lakeland New Homes Among the Most Affordable in NationEven after the recent real estate market crash, there is a fascination with homeownership. Many still see buying a home as a rite of passage — and a sign of adulthood.

Whether you decide to wait on buying a home, or whether you decide that now is the time to take the plunge, you will need to save up for a down payment. For the most part, lenders are still skittish about 0% down home loans. At the very least, you will likely need 3.5% down for a FHA loan.

So, as you try to drum up the money for a down payment, where can you turn? Greg Cook, a representative of Platinum Home Mortgage, has 30 years in the business, and he has some ideas of where you can turn for help with that down payment.

Turn to Family Members for Gift Funds

When it comes to getting the money for a down payment from someone else, Cook points out that, “FHA and VA have the most liberal requirements.” According to him, all of the funds for a down payment can come in the form of a gift from an “immediate” family member. “This reflects a recent change,” he continues. “Prior to 2013 the gift could be from any family member or close friend, but like everything else there was a great deal of abuse.”

Even with the tighter restrictions, it’s still possible for homebuyers to get help from their relatives when it comes to getting the money needed to close. However, it’s important that the money be a true gift that the giver can afford. “The lender will require a copy of the account statement that verifies there are sufficient assets in the account,” Cooks says. “If gift funds will be involved, I highly recommend speaking to the lender before the funds are transferred so the closing won’t be delayed while the lender tries to source and verify the gift funds.”

Government Programs for First Time Homebuyers

Because homeownership has long been a priority in this country, many state and local governments offer special programs that first time homebuyers can take advantage of. “Many states, counties and redevelopment agencies have down payment assistance funds available for first time homebuyers,” Cook points out. Find out if you qualify for these programs, and apply. This is often free money that you can receive to help you buy your home.

Sometimes, Cook says, you can also get help in the form of a secondo mortgage, often called a “silent second,” that forms the basis for your down payment. You have a loan for the down payment, but the repayment terms, because they are subsidized by the government or redevelopment agency, are fairly easy.

What about Sweat Equity?

“The concept of sweat equity has been around for years,” Cook says, “but it rarely — if ever — gets used.” He explains that the amount credited toward down payment is “too subjective for lenders to be able to accurately determine the contribution.” That said, check your local area for sweat equity programs that might provide you with down payment help in return for your help building your home and other homes in the areas.

Retirement Accounts

Finally, Cook points out that more people are starting to tap into their retirement assets to get the money for a down payment. “We’re seeing more homebuyers tap into those funds, either loan or withdrawal, to get money for down payment and closing costs.”

Before you take this step, make sure you know the rules and penalties associated with your retirement account. And don’t forget about the opportunity cost that can be involved.

(Photo: highlandhomes)

{ 8 comments, please add your thoughts now! }

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8 Responses to “How to Get Money for a Mortgage Down Payment”

  1. I advocate saving up the hard way with your own money and putting 20% down. At that point you will have sacrificed enough to know if it is what you truly want or not.

  2. Michelle says:

    We plan on saving as much money as we can for our down payment on our next house. Extra income helps with that a lot!

  3. admiral58 says:

    Not sure why people tap into retirement accounts. It’s not just about the monthly payment. So many things go wrong with a house, whether it be the AC, a furnace, the roof, etc. Just save up when you can afford those things

  4. Holly says:

    I really think that if a person can’t save up enough money to buy a house, then they can’t afford it and shouldn’t buy a home. Yeah, it is hard to save money and it takes a long time, but when it happens through your own hard work and self control it really means something. And if you are making such a financial commitment like a house, then you should be able to do it yourself. If you need to borrow money for a down payment, then you should maybe rethink purchasing a home until you can save your own money.

  5. Chris says:

    Sometimes its tough to come up with 20% or even the 3.5% that is required by FHA. Downpayment is one barrier that can keep folks who dont make a ton of money out of the homeownership opportunity. Utilizing gifts, govt assistance or taking some out of your retirement are all viable options for someone who is otherwise able to purhcase a home. While homeownership can be costly and not being able to save for the downpayment is one indicator that this person in not ready, WE should not say as a blanket statment YOU are not ready becuase you have not saved 20% or 3.5%. I beleive that our responsibility is to provide the information and let people decide for themselves if homeownership is right for them.

  6. jim says:

    ICK – I REALLY do NOT like the under tone of this article. You can’t afford it so borrow from your family, turn to the gov’t or tap your retirement funds – all the while demeaning sweat equity. WOW – sounds like socialism to me. STAY CLEAR OF THIS ADVICE – ICK, ICK, ICK!!!!!!!

  7. Bucksprout says:

    I agree with most of the comments that if a person can’t save for a down payment, they are not ready to buy a home. Saving as much as possible is critical and makes you a better candidate when purchasing a home. A friend of mine is currently searching for a home. It’s been over 6 months, they’ve made 5 offers and all have been turned down because the other offers had a bigger down payment, all cash or offered to pay over the asking price. The market in the Bay Area is competitive and cash is king.

  8. James says:

    I disagree, in our area renting a single bedroom apartment is more expensive than purchasing a small 2/2 single family house in a nice suburban area.
    When my wife and I moved from our 1 bedroom apartment and bought our nice 2/2 house using FHA with a 3.5% down-payment the total cost of our payments dropped $200 a month including tax/insurance/loan insurance. On top of that our utility bills are much cheaper.
    We struggled to save the 3.5% down because of the high rent costs.

    Now we are in total paying $500 less each month for our house and putting that into savings.

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