Even 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.
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 )