Remember the 60's song 'Tighten Up'?
Lenders are tightening up loan qualifications for borrowers. A high FICO score and large down payment are your strongest allies to obtaining a home loan.
Here are three alternative creative ways to find those down payment funds (consult with your tax preparer prior to taking any action).
- Tap Into Your IRA
- Borrow Against 401(k) Plan
- Family Gifting
Tap Into Your IRA
You can withdraw up to $10,000 from an IRA for a down payment on your first home. The withdraw is penalty-free; however the amount withdrawn will probably be subject to federal income taxes. If you are in a low tax bracket, this may be a good option for you!
The $10,000 is a lifetime limit. You must use it within 120 days or incur tax penalties. Your tax advisor can provide more details, or contact the IRS (800-829-1040, www.irs.gov)
Borrow Against Your 401(k)
Most companies permit loans against its 401(k) plans. Generally you are permitted to borrow up to 50% of your vested balance. The IRS states that the loan must be repaid within 'a reasonable amount of time.'
Big caution on this option: if your employment ends with that company, the loan must be paid in full, usually within 60 days. So don't even think about using this down payment option if you plan on quitting or retiring soon.
Family Gifting
Family members are permitted to receive $12.000 per year, per person, and not have be be concerned about the federal gift tax. This means you don't have to declare the gift as income on your federal income tax.
Be sure and obtain a letter from family members (usually parents or grandparents) stating that the monies have been 'gifted' to you, and your spouse, and are not to be considered as a loan requiring pay back.
Hope you found these suggestions helpful, and again have your tax advisor crunch the numbers for you!
Michael Lozar
Bellingham Mortgage Advisor
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Those are great ideas, but for most first time home buyers, those options usually aren't available because they are usual younger and don't have any retirements accounts to borrowr from, so that leaves gift funds.
John Thomas - Citizens Lending Group - http://www.DelawareMortgageLoans.net