If you are looking to purchase a home, one of the first steps toward accomplishing that goal is to save up a down payment. For a traditional mortgage, you will need to put 20% of the purchase price down at closing. However, it may be possible to put down less depending on a given lender’s requirements. What are some ways that you can obtain money to make a down payment?
Take Cash From an IRA or 401(K)
You are allowed to take money out of an IRA or 401(k) without penalty if the withdrawal is used to purchase your first home. Even if it isn’t enough to make the entire payment, it can be an easy way to access the thousands of dollars that you will likely need at once.
Use Money From a Savings Account
Ideally, you will have the money needed to make a down payment om a house already in your bank account. Most lenders will require that you have enough cash on hand to make two or three mortgage payments as a condition of approving your mortgage application. Generally speaking, it is a good idea to start saving up for a home purchase months before you start applying for loans. This allows you to build up a reserve and keep it long enough to meet lender seasoning requirements.
Parents or Friends Can Make a Gift
In most cases, you can use a gift to make a down payment if you are applying for an FHA or USDA loan. The gift can either cover the entire payment or be combined with other sources of cash. If you are going to seek a gift, the source of the money has to be documented to ensure that it is legitimate.
What Is a Structured Settlement?
Money from a structured settlement could be used to make a down payment on a home. Structured settlements are generally reached in personal injury cases, but they could be agreed to in a variety of other cases as well. You may be able to purchase a structured settlement and add it to a taxable or retirement brokerage account.
If you are looking to buy a home, it is important to account for the down payment. This is because it can take several months to save the money on your own. Assuming that you want to close on a deal in a timely manner, it may be necessary to plan on dipping into a retirement account or asking others for assistance.