After the housing market collapse more than five years ago, lenders are now requiring that borrowers come up with bigger deposits before they can qualify for a mortgage to buy a home. While some home buyers have been saving for years to pay for their deposit, many only have a small portion of what they will need to buy the home of their dreams. With interest rates increasing, you may want to take advantage of the current low interest rates and the bargain home sales prices. If the only thing holding you back is the deposit… here are five possible ways you can get hold of the money:
1. Withdraw From Your IRA
If you have an Individual Retirement Account, you may want to consider tapping into the account to get the money you need quickly. While some tax-protected accounts come with penalties, if you are a first-time home buyer, you may have the option to withdraw from your account to put towards your home purchase without being penalized. According to Fool.com
“Now the law allows individuals to receive distributions from their traditional IRAs to pay up to $10,000 of first-time homebuyer expenses without incurring the 10% early withdrawal penalty that usually applies to withdrawals from a traditional IRA before age 59 1/2. But, even though the penalty is waived, you will still be required to pay taxes (as applicable) on the traditional IRA withdrawal itself.
The rules for taking a distribution from a Roth IRA to finance a first-time home purchase are slightly different than those for a traditional IRA. Remember that a withdrawal taken from a Roth IRA for the purchase of a first home is considered a qualified distribution after the account has been open for five tax-years. As such, any distribution taken from a Roth for that purpose and under those conditions will be both income tax- and penalty-free.”
2. Borrow from Your 401(k)
If you have a 401(k) with your employer, most employers will allow you to borrow against your retirement account in the form of a loan. Because you are borrowing against it, it isn’t considered a distribution and therefore isn’t taxable.
You can generally borrow half of the amount vested into the account, up to specified limit set by your employer. As you repay the loan, your balance and the interest you have earned will go back into the account. As long as you repay the entire loan balance before retirement, you will not be taxed on the money you borrow.
3. Peer to Peer Lending
This option is becoming increasingly popular. When you choose peer-to-peer lending, aka. microloans you are borrowing directly from an individual in the marketplace and paying interest on the money you borrow. You will get the money you need without dealing with a conventional lender, and the person lending the money will earn interest while the marketplace earns a fee for connecting buyers and sellers. If you are buying a second home as a residential buy to let or holiday home then there are some specialist peer to peer mortgage lending companies such as Folk2Folk in the South West England that you can borrow money from. See: What is Peer-to-Peer Lending?
4. Seller Financing
If you are buying a home from a seller who owns their home free and clear, you might want to ask if they are willing to act as your banker. Seller financing, while it has its risk, is a good option when the documents are constructed properly. You will pay the seller as if you are paying your mortgage lender and the seller will receive the sales price plus interest. This can be a good option for both the buyer and seller. The buyer doesn’t need as big a down payment and because bank are paying so little interest these days, if the seller doesn’t need the money right away he can probably get more by offering to finance the home.
5. Friends and Family
If you have family members who are willing to help you, you can receive gifts that will not affect your ability to qualify for your loan. All you will need is a gift letter showing that the money you have received does not have to be repaid.
There are a variety of different ways you can get your hands on the money you need. Be resourceful and research your options. You should know the advantages and disadvantages of each method you choose and make the best choice for your situation.
See Also:
- Buying Your First Home
- Is Now the Time to Take Advantage of the Current Buyer’s Market in Real Estate?
- 5 Things to Consider When Buying Real Estate
- What is the Best Advice for Securing a Bad Credit Home Loan?
- Is Financing Your Child’s Mortgage Right for Your Family?
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Image courtesy of Stuart Miles / FreeDigitalPhotos.net
