Closing Costs And Down Payment For Home Purchase

Down Payment For Home Purchase

Gustan Cho Associates

Two types of costs required for a home purchase is a down payment and closing costs if you are a home buyer.  Home buyers do not have to worry about closing costs because you can get a sellers concession from a home seller to cover most or all of your home purchase closing costs.  Also, a home buyer can get a lenders credit towards a home buyer’s closing costs where for a slightly higher mortgage rate, the mortgage lender can give the mortgage loan borrower a substantial credit to cover the home buyer’s closing costs.  However, down payment is a different story.  Unless you are getting approved for a VA loan and/or USDA loan, you will need a down payment for a home purchase.  VA loan programs and USDA loan programs do not require down payments.  Minimum down payment requirements for conventional loans is 5% down payment.  Fannie Mae just launched a 3% down payment conventional mortgage loan program a few weeks ago that may help many first time home buyers.  The Federal Housing Administration requires 3.5% down payment for FHA insured mortgage loan borrowers as long as they have credit scores of 580 FICO or higher.  Those FHA insured mortgage loan applicants with credit scores of under 580 FICO need a 10% down payment to qualify for a FHA loan.  Reason mortgage lenders require down payments from home buyers is because they want home buyers to have skin in the game.  If a home buyer does not put any money down and when things go bad for them financially, it is easy for them just to pack up and move on.  However, if a home buyer has money of his own as a down payment, the home buyer will not want to lose that down payment and equity in his home and will do everything possible to save his home or try to sell his home in order to get his equity back.

Advice On Coming Up With Down Payment For Home Purchase

Thousands of folks are able to afford a home purchase and its monthly housing payments, however, lack the down payment to go from a renter to a homeowner.  No matter how much these folks make, they have a hard time saving for a down payment for a home purchase.  Fortunately, there are ways of coming up with a down payment if they are creative.  We will cover ways of coming up with a down payment for home buyers on this article.

Gift Funds Are Allowed

Both conventional loan programs and FHA loan programs allow for gift funds from a family member and/or relative to be gifted to the home buyer to be used for the down payment on a home purchase.  FHA allows that a family member and/or relative of the home buyer to gift 100% of the down payment for a home purchase.  Conventional loan programs allows a percentage of the down payment to be gifted by a family member and/or relative unless the family member and/or relative is gifting the full 20% down payment.  Any gift for conventional loan programs that is under 20% down payment is allowed but 3% of the down payment needs to come from the home buyer’s own funds.  A gift letter needs to be signed and dated by the donor of the gift stating that the gift funds is not a loan and does not need to be paid back and 30 days of bank statements is required by the donor of the gift showing that the gift funds has been seasoned.  The funds leaving the donor’s account and deposited into the recipient account is required.  Cash gift funds is not allowed.  Any cash funds cannot be sourced and does not exist nor count in the mortgage industry.

Selling Large Ticket Items That You Do Not Need

Other ways of coming up for down payment for a home purchase is to sell large ticket items.  You can sell a car, boat, jet skis, jewelry, or other large ticket items and use those proceeds towards your down payment as long as it is sold.  You cannot sell a high ticket item on eBay and get cash for it and use that towards your down payment. All high ticket items sold needs to be documented.  Cash deposits cannot be sources, therefore, cannot be used towards your down payment unless it has been seasoned in your bank account for 60 days.  For example, if you have a boat that you are selling, then get the payment with a check and/or cashier’s check, make a copy of the check and/or cashier’s check, get a copy of the bill of sale, get a copy of the title transfer, and get a copy of the deposit slip.  Then this transaction is sourced and can be used towards your down payment.  Also take photo of the high ticket item, copy of your ads, and any and all documentation pertaining to the transaction.

Using IRA As Source For Down Payment For Home Purchase

Many folks do not realize that they can use their IRA and/or 401k retirement account towards the down payment of their home purchase.  If you are willing to tap into your retirement account to be a homeowner and exhaust part of your retirement funds, this can be an option.  Taxable distributions from your IRA may be exempt from you cashing in your IRA before you are 59 1/2 years old from the 10% penalty requirement, not taxes, as long as you are a first time home buyer per IRS code as long as you did not have a interest in a principal home during a 2 year period from the date of acquisition of a home.  A home buyer may still be eligible to take money out of his or her IRA even if they were previous homeowners but not recent homeowners in the past 2 years.  Check with your IRA account executive and/or accountant on this.  The exemption and no penalty distribution is capped at $10,000 per person who is qualified which included both home buyers, husband and wife as long as they are first time home buyers.  Before you act on this, make sure you thoroughly review your IRA statement and terms of agreement and consult with a professional to make sure.

Many home buyers who have 401k accounts can borrow against their 401k via the 401k plan adminstrator and pay themselves back instead of doing a withdrawal against their 401k.  Those borrowing against their 401k retirement account plan often times will help the borrower exempt from tax penalties on the withdrawal of the funds.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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