"I love the house, but I don't have a down payment" How many times have you thought that? Many buyers are looking at houses and they think they don't have a down payment.
Don't walk away from the house.
There are ways you can come up with the down payment.
Here are 3 ways you can come up with the down payment.
1.
Use money from an IRA (it doesn't have to be their own IRA) The IRS allows a first time homebuyer to withdraw up to $10,000 from an IRA penalty free and tax free.
If your are married, each spouse can each withdraw $10,000 penalty free, giving you $20,000 to put down on the home.
What if you don't have an IRA? You can ask someone in your family if they have an IRA.
Family members are allowed to give you money from their IRA to use toward the down payment of a home for a first time home buyer.
The IRS will allow the first time home buyer, their spouse, a child, a grandchild, a parent or other ancestor, to withdraw $10,000 from their IRA penalty free and apply it to the purchase of the home.
For the withdrawal, the IRS defines a first time home buyer as "you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild.
If you are married, your spouse must also meet this no-ownership requirement.
" (from IRS publications) * Before you withdraw funds from an IRA, make sure you check with your accountant.
2.
Use the First Time Home Buyer Tax credit Some states allow the tax credit to be used as the down payment for the home of a first time home buyer.
That's great if you are in one of these states.
If you are buying a house that is not in a state that allows the first time home buyer tax credit to be used as the down payment, there are some other ways to accomplish the same thing.
One thing to consider is borrowing from a 401K and using the first time home buyer tax credit to pay back the loan to the 401K.
Most 401K plans allow the participant to take out a loan that has to be paid back to the 401K.
You can use this loan toward the down payment on the home.
Then when you receive the first time home buyer tax credit, you can use that money to pay back the loan.
You will have to pay interest on the loan and likely make monthly payments from your income to pay back the loan until you receive the tax credit.
That is why it is critical that you speak with an accountant before taking the loan out of your 401K.
You could borrow money from a relative or family member and pay back that loan when you receive the first time home buyer tax credit.
The advantage here is that you can repay the loan in full when you receive the tax credit, instead of making monthly payments.
You should first check with your accountant to see how much of the tax credit you will qualify for.
3.
Borrow from family Many family members want to see you in their first home.
You can ask family if they will lend you the money for the down payment.
To entice them to lend you the money, you need to offer them something in return.
You should offer to pay them interest and set the amount of time it will take to pay back the loan, and how much you will pay them each month/quarter/year.
This loan can also be secured by the house as a second mortgage.
There is no rule that states the 2nd mortgage has to come from a bank.
As long as the bank is secured in 1st position at an LTV that is acceptable to them, and they know where the down payment is coming from, they should be OK with making the original loan.
The family member that is loaning money to you is in a secure position because their loan is secured by the house.
These three items should help you get you into your first home.
Don't walk away from the house.
There are ways you can come up with the down payment.
Here are 3 ways you can come up with the down payment.
1.
Use money from an IRA (it doesn't have to be their own IRA) The IRS allows a first time homebuyer to withdraw up to $10,000 from an IRA penalty free and tax free.
If your are married, each spouse can each withdraw $10,000 penalty free, giving you $20,000 to put down on the home.
What if you don't have an IRA? You can ask someone in your family if they have an IRA.
Family members are allowed to give you money from their IRA to use toward the down payment of a home for a first time home buyer.
The IRS will allow the first time home buyer, their spouse, a child, a grandchild, a parent or other ancestor, to withdraw $10,000 from their IRA penalty free and apply it to the purchase of the home.
For the withdrawal, the IRS defines a first time home buyer as "you are a first-time homebuyer if you had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild.
If you are married, your spouse must also meet this no-ownership requirement.
" (from IRS publications) * Before you withdraw funds from an IRA, make sure you check with your accountant.
2.
Use the First Time Home Buyer Tax credit Some states allow the tax credit to be used as the down payment for the home of a first time home buyer.
That's great if you are in one of these states.
If you are buying a house that is not in a state that allows the first time home buyer tax credit to be used as the down payment, there are some other ways to accomplish the same thing.
One thing to consider is borrowing from a 401K and using the first time home buyer tax credit to pay back the loan to the 401K.
Most 401K plans allow the participant to take out a loan that has to be paid back to the 401K.
You can use this loan toward the down payment on the home.
Then when you receive the first time home buyer tax credit, you can use that money to pay back the loan.
You will have to pay interest on the loan and likely make monthly payments from your income to pay back the loan until you receive the tax credit.
That is why it is critical that you speak with an accountant before taking the loan out of your 401K.
You could borrow money from a relative or family member and pay back that loan when you receive the first time home buyer tax credit.
The advantage here is that you can repay the loan in full when you receive the tax credit, instead of making monthly payments.
You should first check with your accountant to see how much of the tax credit you will qualify for.
3.
Borrow from family Many family members want to see you in their first home.
You can ask family if they will lend you the money for the down payment.
To entice them to lend you the money, you need to offer them something in return.
You should offer to pay them interest and set the amount of time it will take to pay back the loan, and how much you will pay them each month/quarter/year.
This loan can also be secured by the house as a second mortgage.
There is no rule that states the 2nd mortgage has to come from a bank.
As long as the bank is secured in 1st position at an LTV that is acceptable to them, and they know where the down payment is coming from, they should be OK with making the original loan.
The family member that is loaning money to you is in a secure position because their loan is secured by the house.
These three items should help you get you into your first home.
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