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There are many opportunities that buyers can use for down payment, here are a few that might help you get off the fence.

1)    First time homebuyers can take a distribution from their IRA without penalty up to $10,000

A first time homebuyer is someone that has not owned a home in the prior two years. Many people have 401-K accounts from past jobs that can be rolled over into an IRA account and used for down payment. You can use the money to pay qualified acquisition costs. This includes closing costs! The distribution has to be done within 120 days of purchasing the new home.

2)    Take a loan from your existing 401-K account

One of the few occasions when it is acceptable to withdraw money from your retirement is when you are buying a home. If you take a hardship withdraw you will pay taxes on the amount you withdraw with a 10% penalty. A regular loan will have to be paid back, but will be paid with pre-tax dollars.

3)    Gifts from relatives

Now is the time to hit up the Bank of Mom and Dad! This option is used quite frequently and has the added benefit that there is no payment. You can decide to pay back the gift if you choose but a gift letter stating repayment is not required will have to be filled out and signed by the donor and buyer. Note that when financing with a Conventional loan, 5% of the down payment has to be the buyers own money. If we can plan for the purchase in advance we can have the gift “seasoned” and avoid this obstacle. Conventional loans generally have a lower payment with the increase in FHA monthly mortgage insurance.

4)    Loans

If you fail to convince the Bank of Mom and Dad, you can ask them for a loan. Just sign an agreement for the payment and terms. Who knows they just might lend the money interest free!

5)    Extra Income

By starting now you can save the 3.5% on FHA or 5% required on Conventional loans in a few months. I am happy to sit down with you and go through a budget to find the opportunities for saving monthly. I have done this with many buyers and we always find things you can live without for the chance to buy a new home. But if we don’t have the conversation and have an action plan, it is just a nice idea that never gets implemented. The key is to start!

6)    Down Payment Assistance

There are many state and local programs that will help homebuyers with down payment. They usually have income limits but some have high income limits that will help most buyers.