Possible Sources of Down Payment and/or Closing Costs you may not have thought about!
Loan programs are constantly changing, and it can be confusing to sort out what is required and how to qualify. Two things are for certain.
- You will need a down payment (your cash contribution toward the purchase price).
- You will need to pay closing costs (the additional fees incurred when purchasing a home such as lender fees, title and escrow fees, property taxes, and homeowners’ insurance).
But how much do you really need to have saved? With all the different loan programs your down payment can be as little as 3 or 3.5% and up to 20% and higher! You can estimate your closing costs will be between 2% – 5% of the loan amount. With our high home prices here in Santa Cruz County, that can be hard to save up! So, what do you do?
With the help of Andrea Schenk, super awesome, top mortgage consultant at Santa Cruz Lending Group, I have put together a list of options for possible sources of your down payment and closing costs that you may not have thought of before that can help get you on your way to homeownership!
1. Borrow from your retirement account.
I know, many people are afraid to go anywhere NEAR their retirement account that they have worked so hard and spent so many years building. But Andrea says, “Don’t be afraid to dip into your retirement! Build the wealth you need to retire through your real estate investment! When it’s time to retire, the equity you will have earned will likely be MORE than what you borrowed.”
Do you have a Roth-IRA? Up to $10,000 in Roth IRA earnings can be withdrawn – free of both taxes and penalty – for a home purchase if you meet certain requirements. You also can withdraw your direct contributions at any time because you already paid taxes on that money.
Borrow from your 401K. Most 401k’s will allow you to borrow up to 50% of the balance in your 401k (maxing out at $50,000). Over time, you pay back the amount you borrowed from yourself. You can stall 401k payroll deductions until the payback is complete in an effort to not increase your monthly output. If you choose to take a withdrawal from your 401k, You are likely to incur a 10% penalty on the amount you withdraw unless you meet very stringent rules for an exemption. Even then, you will still owe income taxes on the amount of the withdrawal. But it IS your money, and if you’re willing to run the numbers with your accountant, you may find it’s worth it.
2. Gift money.
For conventional financing (loan amounts of $970,800 or less) your family can gift you ALL of your down payment and closing costs, as long as you intend to occupy the home. Many new home buyers rely on family gift money to get them started on the road to homeownership. It’s possible that in just a few years you will be able to refinance your mortgage and pay them back with the equity you earn!
3. Refinance or sell your big toys!
If you don’t have a lot of debt, this is a great option! If own your car, boat, or even an RV outright, you can borrow against it by refinancing that asset to get cash for your purchase. What a way to think outside the box!
4. Lender credit or rebate
This is a big one! Mortgage rates have been historically low for years now! Even with a slight increase in rates, money is still very cheap to borrow. So, check this out… by increasing your mortgage rate by just .25%, you could get a lender credit/rebate of up to a full point back! (A point is 1% of the loan amount). So, as an example, applying that conventional loan amount of $970,800, you could increase your mortgage rate from 3.5% to 3.75% and get $9,708 (yes!) towards your closing costs! That would only increase your monthly mortgage payment by around $160. So cool!
Did you know that a VA loan has NO DOWN PAYMENT requirement!!??!! A VA loan is a mortgage loan guaranteed by the United States Department of Veterans Affairs specifically for veterans. If you are a veteran, you must ask Andrea about this type of loan! It could make all the difference.
6. First Time Home Buyer Assistance Programs
Most locals in Santa Cruz County have heard of the measure J and measure O programs that are focused on lower income first time home buyers. While these are great programs if you CAN meet all the requirements, they are becoming increasingly more difficult to qualify for because of their tight income and asset limits, and very specific family size and logistical restrictions.
However, a CalFHA loan is a California state loan program that offers down payment assistance to first time home buyers with (relatively speaking) easier qualifications to meet.
These are very general outlines of options, and restrictions apply to all scenarios. But, if ANY of these ideas are new to you and have inspired you to dive a little deeper into your own situation, and made you curious about discovering where YOU could possibly get some extra funds and be on your way to homeownership, you MUST contact Andrea Schenk at Santa Cruz Lending Group. (831) 431-0496. firstname.lastname@example.org. https://www.santacruzlendinggroup.com/andrea-schenk
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