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Finding A Down Payment To Buy A House

Haven't already put away thousands of dollars? Here are some ways people have used to come up with the down payment and make home ownership a reality…

1) Borrowing from your 401(k) plan.

Check with your plan administrator to see if your plan allows for loans. Many do. The maximum loan amount is usually the lesser of one-half of your vested account balance. Find out the plans loan guidelines. Sometimes the loan comes due if you leave the company.

2) Tapping Into Your IRA

You are permitted to withdraw up to $10,000 without penalties from an IRA for a down payment to buy your first principal residence. You may have to pay income tax on the withdrawal. Also be certain to find out how long you have to replace the money back into the fund if you decide not to use it. A CPA should be able to advise you of all tax issues.

3) Use A 2nd Mortgage

Taking out a 2nd mortgage at the same time you take out your 1st mortgage can do two things for you. First, it may allow you to avoid paying private mortgage insurance when you put less than 20% down because you could have a 1st mortgage at 80% loan to value that would not require the PMI. The 2nd loan amount does not require PMI. Secondly, the 2nd mortgage would allow you to put a smaller cash amount down of say 5% to 10%. 2nd mortgages do have higher interest rates than 1st mortgages so you just need to determine what the total monthly payment would be for the 1st and 2nd combined and then find one you are comfortable with.

4) Use your equity in an existing house as a down payment for a new one.

You may have bought a starter home, have lived in it for several years, and now wish to trade up to a larger home or invest in a second home. Considering rising home values, using some of your equity to raise down payment money may work better than saving money in a CD or making other investments. The leveraging in real estate works like this. If you put $20,000 down on a $200,000 house and the house increases to $300,000, you've made $100,000 on a $20,000 investment. If you would have instead placed the $20,000 into an unleveraged investment such as stock or commodities and they went up by 30% (which would represent a great return for those vehicles), your original $20,000 investment would end up as $26,000. Still not a bad return but because it isn't leveraged you end up with a much lesser return than with leveraged real estate.

5) Your good credit score and debt ratio may qualify you for a no down payment purchase loan.

You may qualify for a first time home loan with no down payment . If this interests you make certain to investigate available programs and rates including their terms and conditions.

Above are five possible ways to realize home ownership right now for people who may not have thousands of dollars sitting in a passbook or CD cash savings account. If you believe you have found that perfect home at a good price and want to investigate loan options requiring very little down, please send your information to Peter. All he requires is the house purchase price, type of property (ie; single family, condominium) an estimate of how much you wish to put down and an idea of your credit score. You will receive a few scenarios to look at by any means you prefer…e-mail, fax or by phone. The choice is yours.