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How to buy a home without a down payment
Mortgage rates are rising and it’s becoming more difficult for a prospective buyer to save up for the necessary down payment. Fortunately, there are ways around this hurdle.
Although home buyers were once required to put down 20% of the purchase price, those times are long gone. Generally, lenders now require 3 to 5 percent down. The problem then becomes how to save up for that 3 percent.
What many don’t know is that they have several options for coming up with the money.
RETIREMENT SAVINGS
Most 401 (k) or Individual Retirement Accounts will allow people to borrow or withdraw money early. Doing so can be a good strategy for the home buyer. With a 401 (K), one can borrow up to $50,000 or 50 percent of the balance, whichever is less, and then repay a loan over five or more years, with interest. The added advantage is that this type of borrowing won’t count as debt when a lender is assessing a person’s qualifications for a loan. And there is also the possibility of getting better appreciation on money invested in real estate.
But, are there drawbacks from borrowing from a 401 K? There can be. For one thing, if the borrower quits or gets laid off from the job, he must repay the loan within 90 days or be subjected to penalties and taxes on the early disbursement.
GIFT MONEY
While borrowing against retirement savings is possible for people who were able to set money aside, there are many people who have little or no savings.
What many don’t know is that some loan programs allow borrowers to use gift money to make down payments. This gift money must generally come from family members, spouses, domestic partners, or even non-profits.
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