Coming up with sufficient funds to make a down payment on a home is one of the major factors that drive away first-time home buyers from taking the next big step into home ownership. Today, 3.5% of the sales price is the absolute minimum payable, not including closing costs which are typically an additional 3%. But if you don’t mind thinking outside of the box, there are some creative ways to come up with enough money to make a down payment.
1.) Sell your belongings – You might be surprised
Whether it’s one of your kidneys (just kidding), all that junk you’ve been hoarding in storage, or the motorcycle your wife and mother are always complaining about, it’s possible to use the net proceeds from the transaction as your down payment. The key is that you can paper trail the money from start to finish, so be certain to have a bill of sale and bank deposit statement to provide your lender.
2.) Retirement accounts – This is done fairly often
You can borrow money from your 401(k) or equivalent retirement account as means to obtain a purchase mortgage loan. Keep in mind, however, that this can possibly be counted as a liability and affect your debt-to-income ratio, depending on the terms set forth in the loan.
3.) The “Are You Feeling Lucky Club” – Trust Funds, inheritance, settlement awards, family buyouts, lottery, gambling winnings and so on…
As long as the sourcing of money is fully documented, any of these can be used for the down payment on your home. Matching of the amounts used to the original deposits will be required when it comes time to secure the loan from your lender. Now take all the money out of your savings account, fly to Las Vegas, and hit the craps table. You have to spend money to make it, right?
4.) Take out a line of credit – v-e-r-y i-n-t-e-r-e-s-t-i-n-g
You can take out a line of credit or a personal loan, deposit the full funds into your bank account, and after two months, the funds are capable for use in the purchase of a home.
5.) Gift Money – Better yet!
There’s no better gift than the gift of money. Gift money is simply that – a gift from family or friend. The gifter must provide a gift letter and a paper trail of the amount they are giving to the buyer as well as provide proof that they have the ability to gift the money.
With a little bit of thought and ingenuity, coming up with the necessary funds for a down payment on a home can be a simple task. Do your homework and be sure to take the time to consult with a lender beforehand so they can help you document the money you plan to use as this will save you from wasting time and gathering unnecessary paperwork.
Original Information from “5 Creative Ways to Come Up With a Down Payment” by Scott Sheldon. Follow Scott on Twitter. Follow Scott on google+. Image source.
Each Keller Williams Realty office independently owned and operated.