If you are interested in buying a home, one of the biggest hurdles is going to be affording the down payment. Here are some ways that you can get through this important part of the home buying process.
Borrow From A 401(k)
If you have a 401(k) through your employer, know that you are allowed to borrow a significant amount of money toward your home's down payment. The rules regarding your 401(k) state that you can actually borrow up to $50,000 in certain situations. While this can be a quick way to gain the cash that you need, know that there are some downfalls to borrowing from your 401(k). You'll have to eventually pay that money back, with potential financial implications of not doing so.
Borrow From a Roth IRA
The process will be much more simplified if you have a Roth IRA. That is because you are allowed to withdraw up to $10,000 from your Roth IRA without paying any penalties for early withdrawal as long as you use it to buy a home. While there are penalties if you've not held the account for very long, in most situations you can just take the money out without much risk, other than the potential lost financial gains from investing.
Borrow From A Relative
It's possible to have a family member help you out by giving you a financial gift to provide for your down payment. One thing to keep in mind is that there are limits to how much a family member can provide for a down payment. There are also tax implications if they give you more than what is allowed for a tax-free gift. Make sure that you know what your state rules are for how much can be gifted for a down payment on a home, since there may be limits for how much can be contributed by others. Lenders may still want you to supply some money.
If you do not have a relative that is willing to give you the money as a gift, you could also borrow that money from them. You should know that personal loans from family members are factored into that debt-to-income ratio that the lender uses to qualify you for a loan, so they need to be made aware of how much you are borrowing and what your repayment plan looks like.
Still have questions about how you'll get your down payment? Reach out to a lender in your area for more info. Contact a lender that offers mortgage loans to learn more.
Share2 August 2021
When it comes to borrowing cash for a new house or a nice car, how much money do you really need? Although you might be tempted to mortgage yourself to the brim or borrow a little more than you should, the fact of the matter is that everyone has financial limits. My blog discusses the impact of borrowing more than you need, so that you can make smarter decisions with your money. In addition to keeping you out of trouble, this valuable information might also improve your quality of life and protect your financial future. You never know, it could make all the difference.
