Episode 56, Segment 2: When You've Found Your Dream Home, But Don't Have The Down Payment Ready
Picture this: You've been saving up to offer a 5, 10, 15, or even 20% down payment on a home -- once you're ready to buy. You figure it will take you a few months to find your dream home, and by then, you'll have saved up enough money for your down payment. But, as does happen so often - you stumble upon the PERFECT home sooner than you thought, and you're just shy of the down payment you were hoping to offer. What happens now? Listen to the podcast now to hear John and Andrew's solutions to this all-too-common problem.
There are actually plenty of different options you can explore when you're looking for down payment assistance:
1. Down Payment Assistance Programs
There's zero down and 3% down options, USDA programs, and more. Some programs offer a 5% grant, while others offer a 5%, zero interest loan. Although these programs and loans usually have a bit of a higher interest rate, they can help you get to that down payment amount you need so you can easily put up an offer on the home you love.
2. Borrow from a 401K
It's common for many people to want to stray away from this option, since we've all been told to "never touch!" our 401k. That's understandable, but it's still an option to think about, especially if you are only a couple thousand dollars away from the down payment you need. Most 401Ks (if you still currently work for the company) allow you to loan yourself up to 50% of the value of your 401k. It's a low-interest rate loan, and you're basically borrowing the money from yourself and paying yourself back. It's an easy, low-risk, low-interest rate option to use when you are just shy of the amount you need.
3. Use a "gift"
Most programs allow you to receive a monetary gift to fill up the shortfall. It's a great and easy option to use if you have a relative or friend willing to give you a gift in order to help you reach that down payment amount. To clarify, a gift must be a gift and not a loan - if there are any terms of repayment, then the gift is considered a loan and therefore not usable.
4. Sell something
Perhaps you have a boat or a car that you don't necessarily need anymore. If you have something valuable that you can sell and will help you reach the down payment amount you need, go ahead and sell it! Just make sure everything about the sale is documented and that you receive a wire transfer or cashier's check - no cash! Your lender must be able to track these purchases.
5. Increase your rate
If you bump up the interest rate on your loan, some lenders can give you a credit back which can be used to increase your down payment amount. The rate increase will probably increase your monthly payment by just about $50/month. Getting a credit back from your lender is a great option - especially if you're not quite sure how long you'll be keeping the house. It's possible for you to break even in 5 years!
6. Pay PMI
Many folks want to save 20% for their down payment so they don't have to pay mortgage insurance, or PMI. However, it's not always as expensive as you think! PMI may be $50/month, and it drops off when you reach 78% of the value. It may only be two or three years before you can stop paying! And in the meantime, you've got the house of your dreams locked down.
If you have more questions on any of these down payment assistance options, feel free to call John Schutze at (512) 524-8310 or Andrew Thurston at (512) 524-8365. Each are happy to help you through whatever situation you're facing so you can land your perfect home!