In order to buy a home, you need to have a balance of good credit, manageable debt, stable income and sufficient savings. Maintaining a balance between these four categories is challenging enough on its own, never mind coming up with enough cash to close on your potential new home. The amount of money you have to buy a house is a primary driver of affordability and your family’s future.
Here are some ways you can you can find extra money for a down payment…
Co-Signing on a House with Another Party – Say you have found an amazing home. You can see yourself living there and it’s in a great location for where you are in life. Your credit is perfect, your income is stable and you have no debt. The problem is that you just do not have enough cash to close on the house. You know you have a friend who does not make as much as you do and whose credit is decent who is not looking for themselves but has a substantial amount of money saved. You could have your friend co-sign on a house together, wait a few years to build up some equity, then either refinance to buy your friend out or sell the house, take your appropriate share of earnings and use it as a down-payment on your forever home.
Moving in with Family – Having a nearby family member that will let you move in for a little while is a great way to save money on rent. It’s nice to live alone but saving that $2,500 per month rent payment and biting the bullet to live with mom or dad is a financial home run. In exchange for a little less privacy, you can start saving big money in a shorter amount of time than you would have continuing at your $2,500 per month rate. This can yield huge dividends for you in the future and could be the means of collecting the down payment for your new home.
Retirement Funds – Did you know that some retirement accounts will let you draw from your reserves early in order to pay for your first home? Every retirement account is different so it is a good idea to contact your Human Resources department with your employer to review your 401k or a bank/financial advisor to review the terms of withdrawal from your investment accounts. In most cases, if it is a first home (you have not owned a home in the last three years), you can borrower from yourself to finance your down payment or cash to close. There can be tax penalties for withdrawing early so review your terms before withdrawing the funds.
Cash-Out Refinance – If you already own a home it might be worth considering a cash out refinance on your current home in order to pay for another one. Fannie Mae and Freddie Mac have recently taken kindly to this approach by changing the equity position in a departure residence to purchase a new primary home. What this means is Fannie Mae and Freddie Mac no longer require you to maintain a 25% equity position in the home. Completing a cash-out refinance on your current home to purchase another is a form of leveraged debt and will allow you to purchase with a stronger offer.
Selling a Home – In a similar scenario, by already owning a home with equity, you can sell your home in order to buy another one. For example, if you have $150,000 of equity in your current home, you can sell and use that equity as a down payment to acquire another. The challenging aspect of this is that these scenarios are contingent upon one house selling to perform on another and can complicate the transaction. If the buyer of your home does not perform or backs out of the deal, your ability to perform on the house you are in contract for becomes at risk. This method should be approached with caution and only with a real estate agent who can walk you through the ins and outs of this strategy. Education is key to a successful dual transaction such as this.
Selling Personal Property – As much as we like our things, it is nice to get a roof over our heads that we can call “mine”. If you have any toys or big ticket value items like a boat, motorcycle, motorhome or novelty, anything that can be sold can be used to generate cash to use when buying a home. In order to use these funds, you need to keep all documentation acquired while selling the item. If you do not have supporting documentation, the cash cannot be used. For example, if you are selling a motorcycle for $7,000, you will need a pink slip signed and dated by you and the seller as well as the Kelly Blue Book value supporting the sale for that personal property, bank statements showing the receipt of the money, and anything else that comes up (bill of sale, etc.).
If you are looking to see what it takes to buy a home, talk to an experienced licensed mortgage professional. If you do not have the necessary means to acquire cash quickly or efficiently, talk to your mortgage professional about programs that require little to no down payments or lenders who have down payment assistance available.
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