Do you not have 20% saved to put down on a home and no way of saving that much in the near future? You might think that you won’t ever be able to buy a home with your inability to save. There are ways, though; you just have to think outside of the box.
Below we give you some simple ways to get the money you need to buy a home sooner than you thought possible.
Ask for Gift Money
Do you have relatives (aka mom or dad) that want to help you buy a home? Let them help! Most loan programs today allow the use of gift funds. Some programs, like the conventional loan, require you to put some of your own money into the investment unless you put down 20% on the home. But FHA loans allow 100% of the down payment to come as a gift as long as you have a credit score above 580.
Now we said you can get the gift from mom or dad, but really, it can come from anyone that you are close to in your life. Technically, lenders like to see the gift funds come from a blood relative, but if you have a close friend or family non-blood family member will to help your case, you may be able to accept funds from them. You just have to prove to the lender that you have a longstanding relationship.
Get a Piggyback Loan
You can borrow your down payment funds with a second mortgage. Typically, you get the funds with a home equity loan, but you may even qualify for a home equity line of credit. The money from the second mortgage will go directly towards your down payment. The first mortgage will be the funds that cover the remainder of the cost of the home.
With the piggyback loan, you will have to put some of your own money into the investment. It’s called an 80/10/10. In other words, you get 80% of the funds from your first mortgage, 10% of the funds from your second mortgage, and you supply the final 10% of the funds with your own money.
Borrow From Your Retirement Funds
If you have a 401K, you may be able to borrow the funds necessary for the down payment. This will vary by plan, so check with your employer or the sponsor and see if you can borrow as a one-time deal from your 401K.
When you take the money out, it’s a loan. In other words, you have to pay the money back to your account. Yes, it’s like paying yourself back, but it’s important because it’s for your future. Typically, you have 5 years to pay it back. But if you leave your job, you will have to pay the full amount back immediately.
You can also borrow from your IRA. The IRS allows a one-time withdrawal of $10,000 for a down payment on a home. If you are married, both you and your spouse may take out $10,000. This is not a loan though. You withdraw the funds from your account, but you don’t have to pay a penalty or taxes as long as you get the one-time exception to use the funds as your down payment. In order to be eligible, you must have the account for at least 5 years.
Take a Second Job
If you don’t have any of the above options available to you, taking a second job may help too. If you dedicate the funds from the second job directly to your down payment fund, you may get there faster than you think.
You probably don’t need as large of a down payment as you think, as many loan programs have low down payment requirements that don’t come close to the traditional 20% down payment. In fact, you can get a conventional loan with as little as 5% down on the home. You can also get an FHA loan with as little as 3.5% down.
Get Government Financing
One last option is to see if you qualify for either VA or USDA financing. VA financing is for veterans of the regular military, Reserves, or National Guard. USDA financing is for borrowers that buy a home in a rural area (the USDA has a loose definition of rural). In addition to buying a rural property, you must not make more than 115% of the average income for your area. The USDA loan is for low to moderate-income families.
If you qualify for either of these two loans, you can get your home without any down payment. The only money you need is for the closing costs, which you can work on with the lender and/or seller if you don’t have enough money to cover the full amount.
As you can see, there are ways to get around the lack of money you have for a down payment. First and foremost, don’t assume that you need a 20% down payment as it’s typically not necessary. Instead, explore your non-traditional options of coming up with a down payment to get the loan that you need.