How do you obtain a down payment for a home?
Buying a piece of property is a huge step. This is a place that could be your primary home, could be your vacation home, could be a rental property for passive income, could be buying the property to keep in the family, etc. Whatever the circumstance, the daunting question… How do you obtain a down payment for a home? Of course the downpayment is extremely important along with many other factors to consider. This link from Bankrate, Inc. outlines other considerations of buying a home: https://www.bankrate.com/real-estate/first-time-homebuyer-guide/
Save, Save, SAVE! This sounds much easier than can be done, huh? Well, not as tough as you may think. One suggestion- portion out (from your income) a certain dollar amount or percentage to put aside for the down payment and put into a special savings account. If your income doesn’t allow for much portioning, perhaps a part time job could be the ticket! Find washing dishes therapeutic? Check out if a restaurant or grocery store is hiring. The money earned can be direct deposited into a special account for a down payment. For those who might have any extra money left over at the end of the month, this could be set aside for a down payment. Also, research ways to save money while making purchases. Some programs will round up to the next dollar amount and save the remaining balance. For example, you buy lunch for $8.19 which is paid to that business. Some programs will round up the total, for example this case will be $9.00, but the remaining $0.81 will be rolled into a savings type of account. Imagine doing this for several purchases a day for a week- money will be falling in your pocket!
Plans to sell your current home? Talk to a financial advisor to determine if the equity built up in the current home can be used towards the down payment for your new home. Perhaps you own your home free and clear and want to downsize. Again, talk to your financial advisor to determine if this would be appropriate for you: sell, use the profit towards buying the next home (probably for a smaller cost since you want to downsize) and enjoy living free and clear again!
Congratulations! You got inheritance money from Great Aunt Bertha! Putting that cash towards the down payment of a home could be a possibility. Make sure to ask a financial advisor if this is the proper route. Also check to if the inheritance money would be considered “gift money” or if certain taxes would apply.
Stocks, bonds, 401(K) or IRA funds could be tapped into for a down payment source. Caution: first ensure your specific accounts would allow you to withdraw funds for your down payment source. There could be monetary penalties if withdrawing happens before the allotted time frame. For more information, check out: https://www.youtube.com/watch?v=PApOv9cR02M
Tax refund money could be a way to have an automatic savings account to obtain a down payment for a home. Some people get excited about receiving a large refund! What is typically done with that extra money? Most likely deposit into a checking account, spend away, then suddenly realize that money is gone. Tax refund money could be deposited into a separate account that you cannot touch until the time comes to come up with the down payment.
Are there financial institutions that loan funds for a mortgage WITHOUT a down payment? If you are or know of a Veteran or someone living in a qualifying rural area, that might be the way to go! This link has more specific details: http://blog.credit.com/2015/08/heres-how-to-buy-a-house-without-a-20-down-payment-124331/ (As mentioned several times, always consult a financial advisor who can go over your unique situation.)
FHA loans have low down payment requirements of around 3%. This could be a more affordable route than saving for the typical 20% down payment on a conventional loan.https://www.youtube.com/watch?v=u7T_82nDMVI
Brianna Ibrahim from The Simple Dollar has a great website to visit for more information: https://thesimpledollar.com/first-time-home-buyer-loans/
https://www.bankrate.com/mortgage/fha-loans/ goes into detail about the requirements for a FHA loan.
You won the lottery! Websites such as www.realtytoday.com and www.personalincome.org stated they encourage lotto winners to invest their winnings into RENTAL REAL ESTATE.
Part of your new-found fortune could be a way to invest into the down payment for a rental property that will bring in cash flow. No matter how large or small your winnings, in the long run, your rental real estate investment could be infinitely bigger!
Sometimes family and friends would be willing to chip in for the down payment. The issue is this is “gift money” which is subject to taxes. Sometimes a mortgage lender may not accept this type of down payment money since it would most likely need to be repaid. For more information, read this excerpt written by Kirk Haverkamp published January 26, 2012 from www.mortgageloan.com:
“Can you borrow down payment money from relatives?
In a word – no. In fact, when putting up gift money for a down payment, you need to provide a statement from the giver that the money does not need to be repaid. The reason for this is that your down payment is supposed to be your own money, free and clear, with no strings attached. If it has to be repaid, even to a relative, that increases your debt burden and affects how much a mortgage lender is willing to lend you.
How much can they give you?
As much as they want or are able to. However, in practical terms, most gifts are limited to $13,000 – that’s how much the IRS allows one person to give another each year without incurring the gift tax. That amount doubles to $26,000 if the gift is given to you and your spouse, and can even increase to $52,000 a year if your parents file their taxes separately and each give gifts to you and your spouse.
The gift tax isn’t something you pay as a recipient – the gift is tax-free to you. From the IRS’ perspective, gifts are a form of early inheritance, so any amount above the $13,000 annual individual limit (up to $5 million lifetime) is taxed on the giver, same as an estate tax would be. That’s also why the gift isn’t tax deductable for the giver, since it’s considered an early payout from their estate.
If you’re fortunate enough to have family members who are able and willing to help you financially, gift money for a down payment can be a big help in buying a home. However, just make sure you know the rules going in so you don’t run into problems during the process.”
If you were wondering how to obtain a down payment for your home, hopefully these tips have helped! The main point here is to be creative with how to obtain a down payment for your home! When the down payment is in place and the process of finding your home has begun, remember that Reel Property Solutions, LLC is here to help you find a home. Our specialty is to find distressed properties to renovate into beautiful homes and be a place to live forever. Therefore, Reel Property Solutions, LLC wants the best of the best for you to select and be comfortable living! Give us a call: 507-218-8788 or email: info@reelpropertysolutionsllc.com for more information. We hope to have a home for you!
