Down Payments – Get Creative
Down Payments – Get Creative
Overcoming the Down Payment Hurdle
One of the most significant obstacles to buying a home is the down payment. Accumulating the necessary funds can be challenging, so exploring creative solutions is crucial.
Down Payments
The size of your down payment can vary based on several factors, but two primary elements influence this amount:
Credit Score: Generally, a higher credit score allows for a lower down payment.
Price: The down payment is a percentage of the home's purchase price or appraisal value, making the selling price a critical factor.
For many first-time buyers, the down payment represents a substantial financial challenge. While saving several thousand dollars can be daunting and time-consuming, some buyers may already have funds set aside without realizing it.
Getting Creative
The Bank of You: The federal government supports homeownership through various incentives and tax benefits. One such benefit is a provision in 401(k) savings plans that allows you to "borrow" from yourself.
Most 401(k) plans permit you to borrow up to 50 percent of your vested account balance. For instance, if you have accumulated $50,000 in your 401(k), you can borrow up to $25,000. This loan can be used toward your down payment. After securing your home, you can repay the 401(k) loan over five years or use a home equity loan to cover the repayment.
In essence, this strategy allows you to utilize your 401(k) funds creatively to address the down payment requirement. This approach helps you navigate the down payment challenge and move into your new home with more flexibility.
