Planning to buy a home sometime soon? If you’re working on the down payment, know what you can and cannot do with your bank. Here are the top 4 ways to borrow the cash needed for a home…
401k/Retirements or Liquid Assets- this option remains a viable source to procure down payment funds to buy a home. Many 401(k) plans have special borrowing provisions that allow you to repay yourself X amount of dollars with preferential terms. Some 401(k) plans even allow you to avoid penalties buying a primary home, while others have fewer restrictions for first-time home buyers (defined as someone who has not owned a home in the last 36 months). Every 401(k) plan is different so be sure to check with your human resources department with your employer about details. Additionally, if you have liquid assets, your financial institution may allow you to take a loan against your cash.
Home Equity Line Of Credit-if you already own a home and are looking to purchase another home such as a second home for example or even an investment property, you can borrow monies from a home equity line of credit as those monies are considered to be your own funds. As long as your income and debt picture supports the payment associated with the home equity line of credit as well as the other monthly carrying costs, (taxes, insurance, HOA) you’re in the green.
Cash Out Refinancing- You could cash out refinance your current home potentially as high as 80% of the value depending on your occupancy and use those monies to acquire another home. Cash out refinancing generally will work up to 80% loan to value on a primary home transaction, and 70% loan to value financing on a rental property and 75% financing on a secondary home. A qualified loan officer can walk you through specific details as it pertains to your financial situation.
Personal loan- a deposit of funds to your account acquired from a personal loan may be considered eligible only after 60 days of “seasoning.” Seasoning is a banking term that refers to the time frame funds are in a bank account for use in a mortgage transaction.
Mortgage tip: Banks and lenders want to know you have your own financial capacity to save the down payment funds or obtain them via a donor.
Banks, lenders and mortgage brokers need to be able to verify you have the funds to buy a home, and the those funds are legitimate funds that can be paper trailed. Money sitting at home in a safe or cash obtained from side jobs recently deposited in an account cannot be used to buy a home.
Additionally, it is important to note: gift monies really have to be a bona fide donor funds. Any repayment of gift funds is not a gift. For example, a blood relative is giving you $40,000 to buy a home. That person will need to provide an executed gift letter stating the donor monies truly are gift funds, as well as provide a bank statement showing they have ability to donate those funds. Lenders will require this for each and every donated dollar. Lenders are not intentionally creating more hooping jumping to buy a home, but are under Federal oversight for properly documenting all funds in the transaction. As long as your mortgage lender can substantiate your funds from the eligible sources you need not have big cash to buy a home. As rule of good financial measure, remember a lower down payment used to buy a home, the more income you’ll need to offset the housing payment.
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