Luczak Group - The Blog

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Tips for Home Buyers

12 Down Payment Sources for a New Home


1. Personal Savings. This is the most common and obvious source for a down payment.


2. Zero Down Payment Loan Programs. There are zero down payment loan programs such as the VA military home loan program. This program is for active duty military as well as veterans and it’s fairly easy to qualify for the program.


3. Gift From Family or Friends. Accepting monetary gifts from family or friends is allowable. Any money received or transferred between accounts from family or friends must be documented properly.


4. Borrow From Your 401K. Borrowing from your 401K is borrowing from yourself, interest rates are low and you re-pay yourself via payroll deduction. You should check with your plan administrator for specifics on taking out a loan to buy a home.


5. Withdraw From Your IRA. Tax laws allow you to withdraw up to $10,000 in Individual Retirement Account funds to buy your first home. If you’re married and you’re both first-time buyers, you each can withdraw from your retirement accounts, meaning a potential $20,000
down payment. Although the IRS may waive the penalty for early withdrawal, you may still have income tax liability.


6. Down Payment Assistance and Grant Programs. There are state agencies and programs that exist to help you with your minimum down payment and/or closing cost requirements.


7. Sell Investments - Stocks, Bonds, CD’s, Mutual Funds. Selling investments are acceptable source. However, you should ensure that you document the sale and transfer into your bank account.


8. Proceeds from Sale of a Home. If you are moving up to a larger home or have a vacation home to sell you can use the proceeds from the sale as a down payment for your next home.


9. Second Job. Lending guidelines do not allow income from a second job to count as qualifying income unless you’ve worked that job for more than two years. However, if you don’t have two years on the job, you can still use the money earned as a down payment.

10. Sell a Car, Motorcycle, or Other Assets. If you have assets that you seldom use, sell them and use the money as a down payment. Make sure you make copies of the title and document the sale.


11. Tax Refund. This is pretty straightforward – use your tax refund as a down payment.


12. Monetary Gift From a Wedding. Couples can use money received as wedding gifts towards the down payment for a new home. The couple will have to document where the money came from for it to be from an allowable source. Before you start making offers on homes, it’s important to work closely with an experienced mortgage lender so you can properly plan and document the source of your down payment.