There is a misconception out there that you must have a 20% downpayment when buying a house. This just isn’t true! Granted, if you have 20%, your terms and interest rate will be will be more appealing, but there are plenty of options out there if you can come up with 3.5% (FHA) to 5% (Conventional). 100% options are still out there for some – though I personally believe all buyers some invest at least a few percentage points towards their goal. Lets start with the obvious.
- SAVINGS. Kind of a no-braniner but still the number one source for most homebuyers.
- SELL SOMETHING.Whether it be another house, a car, or even a fancy coin collection. You should know that most underwriters want to see that the down-payment source has been “seasoned” in your account for a few months – thus proving that the funds are actually your own and not from some nefarious source. However selling personal property can be considering instant liquidity; just make sure you have proper documentation of the value and sales price.Similarly, if you come into spontaneous money from an insurance settlement, court award, or lottery, these funds can be viewed as immediate and bypass the need for “seasoning.” Your income tax refund can also be used immediately.
- BORROW FROM YOUR 401K. I’m not typically a proponent of this, but most retirement plans do offer this option. You must read the fine print as you will likely incur early-withdrawal penalties or income tax repercussions.
- GIFT FUNDS. If the funding source is a gift from a family member, you must make sure that the gift is well-documented and the Giver must sign a waiver implying that the funds are indeed a gift – not a loan.
- EMPLOYER ASSISTANCE. Many folks forget about this, but there are toms of employers who may contribute cash (or a forgivable loan) if you invest in a home. Employers WANT employees with homes. They’re more reliable, and more likely to stay in place. I rencently helped a first time buyer who is employes at Regions Bank. She was able to get $5,000 in assitance. Metro Nashville sometimes offers the HOME program for police, fire, and teachers (though at the time of writing the program is not funded).
- MILITARY BENEFIT. Military families have the option of VA financing. The VA offers loans up to 100% of a homes loan-to-value. Check to see if you qualify.
- GOVERNMENT ASSISTANCE. In Nashville, THDA offers a variety of home financing options for first time buyers and low-income buyers. There are fees involved, so be sure to ask your lender about details. The Housing Fund is another option locally.
