Friday, August 19, 2011
by Tom Stachler,ABR,CDPE - Group One Realty Team
One of the biggest hurdles in Buying a Home is coming up with the required downpayment amount. The zero down payment days are gone and in fact the 3.5% min for FHA loans may be increasing to 6% sometime in the future too.
Want to avoid PMI payments too? Then you will need to put a min 20% of the purchase price down. If you can show you have 20% equity in a property you can request this monthly payment be removed from your lender on both new and existing mortgages.
Back to the downpayment options..... of course some buyers will simply save up their own cash, even if it takes more time. The good news is that there is some help to boost your down-payment savings, there are resources that you can harness to power your home-buying pursuit:
- The FHA Bridal Registry. Yes - thst's right! The FHA Bridal Registry Program enables wanna-be home buyers to apply their families’ wedding cash gifts toward their down payments. And although it’s named a “bridal registry” program, you don’t have to be a newly wed to use it. You could also use this program to collect gifts from graduation, the arrival of a baby or some other major life event in which people want to give you gifts.
The FHA Bridal Registry works like a traditional registry, but it's more flexible. The registrants visit their choice of FHA mortgage lenders and set up what essentially is a custodial savings account for the single purpose of funding their down payment. The couple’s (or individual’s) family & friends can either deposit funds directly into this account or give the cash or check to the couple or individual, who can then deposit it into the account. The account’s flexibility also goes beyond that of traditional down payment gift rules that are applicable to FHA loans, which are detailed below in insider secret #2. With the FHA Bridal Registry Program, the only gift documentation required is “lender and borrower certification of the funds.
- Family gifts. Most lenders will allow a home buyer to apply gift money from a family member toward their down payment - within guidelines, that is. First, the lender will require a letter from the giver verifying that it's in fact a gift and not a loan. (They generally frown upon it being a loan because it would add to the buyer’s debt and change their debt-to-income ratio.) And second, the person(s) giving you the money must be a relative. The reasoning here is that a friend will most likely expect you to repay the money, whereas a relative won’t. FHA loans will allow the gift to make up any portion and/or all of the buyer’s down payment, many conventional (non-FHA) loan programs will restrict the proportion of a buyer’s down payment that can come from gift money. The lender may also have specific ways they want to see the money go into and out of your bank or investment accounts. Before you accept a gift toward your down payment, be sure that you check with your mortgage broker or loan rep to be sure that you’re proceeding correctly.
- Your Employer. Some companies offer home purchase assistance programs to employees. Most are government, university, large company and financial industry employers. One example is safety workers: in some areas, safety workers like firefighters and police can have access to down payment grants from their employers if they buy properties are located within the city limits where they are on-call as first responders. Also, many large colleges and universities, very large companies and banks & lending institutions offer down payment help and have below-market-rate mortgage rates set up for faculty members and staffers. Check with your Human Resources or relocation department to see if any such program is available to you.
- City/County/State Programs. Some states, counties and cities still offer programs that lend or will give home buyers some assistance for down payments. These programs vary widely in scope - for instance, many target buyers with low and moderate incomes, while some seek to help the buyers of foreclosed or fixer-upper type homes. Some loans don’t have to repaid - meaning they are given as grants and are forgiven entirely if the buyer lives in the property for 10-30 years, but must be repaid if the buyer sells or rents the home out before the specified time period elapses. The programs generally have a homeowner education component that requires applicants to take personal finance and homeownership preparedness classes before they can receive funds. To learn more, visit your city, county and state websites to learn about programs that might be able to help you or contact us using this website submit form below.
- Your Retirement Funds. Many financial advisors would advise against this, but if you have a 401K or Roth IRA account and some years to go before retirement, then you might be able to tap into it or even better borrow from yourself against your own funds for your down payment. Currently, you can take up to $10,000 out of a Traditional IRA with no penalty to put toward the purchase of your first home, but you will be taxed. You can take as much as you want out of your Roth IRA contributions with no penalty or taxes, though, and as much as $10,000 from your earnings penalty-free for use as a down payment. The rules get a little tricky, here, so definitely check with your tax and financial advisors.
And while you can’t similarly draw from your 401K, many retirement and pension plans will allow you to borrow the money from yourself against your funds, then repay it to yourself – at interest. So the choice there comes down to paying your lender back with interest or paying yourself with interest. That choice should be be easy.....you! But first, get some advice from your CPA and/or financial planner. Its possible that this option might not make financial sense for your particular situation.
Remember you can view homes using a direct access to the Board of REALTORS MLS inventory to find homes for sale in Ann Arbor by clicking here, or homes for sale in Saline Michigan by clicking here.
