Some home loan companies allow you to put down five percent of the sales price or less as a down payment, but many buyers prefer to put down at least 10 to 20 percent of the sales price. In some cases, a lender may even require a more significant down payment.
A larger down payment gives you lower monthly payments and more equity from day one of ownership. However, finding money to use as a down payment can seem tricky. Consider these tips to find the down payment funds you need.
Use Your Retirement Account Funds
If you plan to buy your first home, you may qualify for an early withdrawal from your retirement account without penalty. You will still have to pay taxes on any amount that has not yet been taxed, but you can avoid the early withdrawal penalty because a first home purchase is a qualifying withdrawal reason.
If you choose to use retirement account funds, however, be aware of how this may potentially push back your retirement plans.
Consider Equity in Existing Assets
Another idea that may work for you when you need to find down payment funds is to draw equity out of your existing assets. For example, you could sell your existing home through a realtor like The Boutwell Team for a sizable profit. You could also refinance or sell a vehicle or boat that are owned free and clear. These are only a few examples of large assets that may yield a fabulous return to use as your down payment funds.
Get a Gift of Funds
Many mortgage lenders, but not all, allow you to use a gift of funds from a close relative as at least part of the down payment. Each lender has unique rules and requirements for this, so you will need to explore the requirements in detail before you fill out a loan application. This is a great idea if you have a wealthy relative or if one of your relatives is able to give you an inheritance payment in their living years.
Making a sizable down payment on your upcoming home purchase is wise, but you should not put so much money down that you are strapped for cash or face financial challenges. Remember that you can combine two or more of these ideas together to more easily come up with the cash you need for a down payment. If necessary, you could also scale back the price point of homes that you are thinking about buying.
