With home prices rising, some buyers may have trouble finding the money required for a 20% down payment. Courtesy of your Brevard County realtor, here are some options for those pressed potential buyers:
Government Assistance
Check whether your city offers down payment assistance programs, some of which are based on income qualification ratios, living location, or profession. There are guaranteed home loans with 0% down from the Department of Veteran’s Affairs for current and former service members. These loans have no private mortgage insurance premium and competitive interest rates, although borrowers may pay some fees when closing.
There is also a home loan program from the Department of Agriculture to increase homeownership in less populated and rural areas. The USDA loans have eligibility rules on income and property size, but there is no money down required.
FHA Loan
Did you know that the Federal Housing Administration backs mortgages that require as little as 3.5% down? If you have good credit, you have a better chance, although everyone can apply. Note that lower down payments mean higher monthly payments (because borrowers are financing more) and more paperwork.
You will be required to pay mortgage insurance on the loan, on top of the principal and interest, so your monthly payments will increase. There is now a larger amount of borrowers because in the beginning of 2015, there was a reduction in mortgage insurance premiums on some FHA loans. This fee change led to an increase in people who wanted the FHA option.
Gifted Money
A parent can give a married couple up to $28,000, without prompting taxes, because the gift tax is currently $14,000 per person. In this situation, the potential buyers need to give their mortgage issuer a letter from the giver stating that the money does not need to be repaid. They may be required to produce their financial statements, too.
Use Retirement Funds
Check whether your 401(k) plan allows removing 50% of your vested balance (up to $50,000) as a tax-free loan. There is a given timeline, often 5 years. The downside is the risk of leaving your employer before that loan is repaid. If this happens, you will likely owe the whole balance within the short time of only 60 days. For those unable to repay by then, the balance will be viewed as an early withdrawal; you will owe both regular income taxes and a penalty.
If you’re a qualified first-time homebuyer, you can use up to $10,000 from your traditional IRA account, with no penalty. (You will still pay taxes on the withdrawn amount, though. If you have had a Roth IRA open for 5 or more years, the distribution, up to $10,000, is not taxed.
