Down Payment Tips: You Don't Have to Save It Yourself – an FHA Home Loan Can Help
April 1, 2020at4:00 AM
When people think about buying a house, they sometimes think about how much money they’ll need to save before they can get into the home of their dreams. This fear of down payment often keeps people from homeownership. Thinking about putting down 20 percent can be so overwhelming, they resign to renting, not realizing how an FHA home loan can help. The good news most lenders don’t readily advertise is that you don’t have to save the down payment yourself. Here are ways you can find down payment money and how FHA home loans make it easier than ever to own a home.
Help from Family Members
There are rules about accepting money from other people. You can’t get a loan from an individual for your down payment. Why? Mortgage lenders want to know you’re financially ready to buy a house. They want your money going into the purchase of your house to prove you have “skin in the game.” If you borrow money, mortgage lenders see that you’ll not only have your mortgage payment but also have to repay that personal loan.
You can be gifted money from family members – this is often how parents help their children get into homes. However, your parents will probably need to provide a letter saying the money you’ve deposited into your account is a gift and not a loan.
Withdraw from Your Retirement Accounts
Most employer 401(k)s and other retirement instruments will allow you to withdraw funds as long as you can prove it’s to purchase a primary residence. This allows people to avoid penalties normally incurred by withdrawals before age 59 ½. Just remember, taking money from your retirement reduces the benefit of money growing tax-free. Always weigh the risk/reward for using retirement funds.
This is rare but can happen. If the seller is desperate and you’re paying their asking price, they may give you the down payment as a credit. Always check with your lender first because there are strict requirements for how big a credit the seller can provide.
FHA Home Loans
Congress established these loans in 1934 to help borrowers with lower incomes obtain mortgages when they wouldn’t normally be able to qualify. FHA home loans are government-backed so lenders are protected against default and usually share that assurance in the form of lower interest rates with borrowers.
Where most lenders require 20 percent down, FHA loans require as low as 3.5 percent as long as you have a qualifying credit score of 580 or above. Even better news? Some of these programs allow you to bundle those closing costs with the loan, meaning you need very little money to close on your home. You can use gift money to cover 100 percent of the down payment, again leaving you to have to pay very little to own a home.
Individual underwriters of FHA loans may have their own guidelines, so it can be difficult to navigate several lenders offers.
When you work with Atlas Crown Mortgage, we use our 25 years of experience to navigate those confusing waters for you and get you in the right mortgage. We’re able to compare rates and programs offered by over 75 lenders across the country to ensure you get the right loan for you, at the right price. Contact us here for a no-obligation quote. You’ve got nothing to lose and the dream of homeownership to gain.