PMI
While PMI or Private Mortgage Insurance has pretty much made the traditional 20% downpayment a thing of the past, buyers who contribute more to their downpayment benefit in the form of better terms and lower rates. First an explanation on Private Mortgage Insurance, PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home's value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI. PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment (and in many cases if your credit is good $0 down). This means that you can buy a home sooner without waiting years to accumulate a large down payment.

Downpayment Sources
While the obvious source of money for your down payment is either your savings or the proceeds from the sale of your existing home, there are alternatives. Here's a look at some not-so-obvious sources for funding your new home:

Life Insurance
If you've built up a cash value on your life insurance policy over the years, you may be able to borrow money from the policy, up to the amount of the accumulated cash value. As an added bonus, your policy loan may offer a more favorable interest rate than other types of loans.

Stocks and Bonds
Cashing in your stocks and bonds is another option to consider. But even if you feel the market doesn't favor selling right now, you may still be able to secure a bank loan using your portfolio as security.

Company Profit-Sharing or Savings Plan
If you participate in a profit-sharing or employer-sponsored savings plan, consider withdrawing from your account or borrowing against if you can.

Parent Power
Your parents may have a considerable amount of equity built up in their home; and, if they're willing and able, they could perhaps give you the money by taking out a home equity loan. A 1981 federal tax law permits tax-free gifts from parents, so be sure to talk with your tax adviser first. Also, be aware that your lender may require a "gift letter" verifying that your parents don't expect repayment.

Tax Strategies
Change the withholding taxes, if permitted, on your salary in anticipation of higher deductions when you get a mortgage. Your take-home pay will increase, giving you more funds to put toward a down payment.

Retirement Funds
Borrow against your retirement funds. In some cases, the rate on the loan may be as small as 2 percent. If you add too much to your debt burden, however, you may not be approved for a loan.

IRA
Withdraw money from your IRA. If you're a first-time buyer you can pull out $10,000 penalty-free (though you must pay state and federal income tax on it) to put toward your home purchase. If you're not a first-time buyer, pull out the very least amount you must. Otherwise, you will have to pay both the 10 percent penalty and income tax on an early withdrawal. Realize that this $10,000 would grow to approximately $300,000 over 30 years though and thus should be consider more as a last result.

Ask For Help
Ask for help from your church, synagogue or other nonprofit organization. Fannie Mae has a "3/2″ loan program that allows you to make a 3 percent down payment if a bona fide nonprofit puts down the other 2 percent.

Plus, you won't want to forget to plan for these other out-of-pocket expenses:

Closing costs (can be factored into your loan)
Moving expenses,
Appliances and household setup,
Reserve for emergencies and miscellaneous items.
In other words, don't put your last penny down at the closing table. Talk to your home mortgage consultant for more information or for help in planning the financing for your new home.

If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please give us a call and we'd be happy to assist you!

The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in;  Bexley  Columbus  Delaware  Downtown  Dublin  Gahanna  Grandview Heights  Granville  Grove City  Groveport  Hilliard  Lewis Center  New Albany  Pickerington  Polaris  Powell   Upper Arlington  Westerville  Worthington