What Maybe Used as a Down Payment?
Understanding what may be used as a down payment is crucial when buying a home, so use a down payment house calculator. Most buyers assume they can only use their savings. However, that is not the case. In fact, many different things can be used for down payments, including retirement funds, gifts, and investment gains. What can be used for a down payment is one of the biggest mortgage questions people have. It’s much easier to buy a home if you look into the alternative options.
From your Retirement Fund
Many retirement funds could have early withdrawal fees. As a result, people overlook their retirement fund when considering what may be used as a down payment. However, as a first-time homebuyer you can take money from your IRA or 401k to buy a house if you want to. A first-time homebuyer means you have not purchased a principal residence within the past 3 years. You may use money from your IRAs. With an IRA you may be able to withdraw up to $10,000 without certain penalties, such as potentially the early withdrawal fee.
For a first time buyer 401k withdrawals are always an option. Instead, consider taking money from your IRA. You may be able to avoid withdrawal penalties. If you are a first-time buyer, you might be able to withdraw a lump sum without charges, but you must pay income tax on it.
You have two options with a 401k such as borrow the money or take a hardship withdrawal. In some cases, you may qualify for an exemption for early withdrawal. You might qualify for a hardship withdrawal if you cannot get the money elsewhere. In many cases, it’s better to borrow the money. Loans taken from your 401k generally are paid back with interest.
Your use Securities Accounts
Equities and bonds can be used to raise money for a down payment. If you have a securities account, consider liquidating some of those assets. Any securities are eligible when it comes to what may be used as a down payment, as long as its liquid. This is an effective way to raise money for a down payment. However, you should weigh the potential gains made from those securities in the future. Instead of selling securities, you might consider taking out a loan against your assets. Be aware of short term and long term capital gains on any stock sale.
Used as a Down Payment
If you are not a first-time buyer, you can use the proceeds from another home sale for your down payment. 1031 exchange rules, you can dictate what may be used as a down payment and what the tax implications are. A 1031 exchange applies when one investment property is essentially traded for another. The property taxes are deferred but must be paid later. Both properties must be real estate investments for this to apply. If the property is not an investment, you may still use the proceeds of a previous home sale to make a down payment. However, property taxes might be applied.
Used for a Down Payment
There are no rules restricting the use of gifts for a down payment. However, different loan providers have their own rules about what may be used as a down payment. A standard FHA or FHA 203b loan down payment can be gifted up to a certain dollar amount with a gift from certain people. On the other hand, some providers require you to pay a percentage yourself. The gift must be documented with a letter. Additionally, it can only come from direct family members, like in-laws.
Life Insurance Payouts and Inheritance
If a loved one dies and you receive money in the will or from life insurance, this can be put towards a down payment. You may also borrow money against your life insurance policy. Some mortgage providers consider them liquid assets. They will take these into account when assessing your eligibility and giving you a mortgage quote. However, please note that lenders generally do not accept borrowed funds, with few exceptions.
Tax refunds for a Down Payment
Once you receive a tax return refund, it is considered your money. As a result, there is no difference between this money and your savings in terms of what may be used as a down payment.
Down Payment Assistance and Grants
There are a number of down payment assistance programs available. If you have looked into what may be used as a down payment and your options are limited, they can be a big help. Most are only available to first-time buyers. However, there are assistance programs for people that have already owned a home. Some offer grants while others provide zero-interest loans. Your savings account is only one source of money for your down payment. These alternatives can help you manage the costs of buying a house more easily.