With home prices souring in the last several years, it has become harder to find the recommended 20% for down payment when purchasing a home- even in a cooling market.

Do not despair- there are actually many several sources that you could use to help with your homes down-payment.

One commonly acceptable source of down payment are actually GIFTS from family. In some cases you’ll have to show that you have at least 5% of your own money invested into the deal; mainly because lenders like to see some personal investment, or attachment, to the property. But beyond that, you’ll only have to document the source, transfer, and receipt of the gift funds, along with a gift letter used to document that the gift is, just that- a gift, and that there is no expectation or requirement for repayment of said gift.

You may also qualify to use money from your 401K as a down payment on a residence. However if you take a loan out against your 401K the monthly repayment amount will count against your Debt To Income Ratios (DTI). Make sure and let your mortgage broker know about any 401K loans that you may have taken out so they can structure the loan properly.

Many people will use the money they get back from the IRS from their tax returns to apply towards a down payment on a home. While this will usually not provide you with a big down payment, it can often provide enough of a down payment to possibly help you qualify for a mortgage loan.

Another way to raise funds could be to sale off an asset. Whether it be a collectible, used car, jewelry, or pricey artwork- anything of durable value can be sold and used as a source of funds for closing. You'll simply have to document the sale with a receipt.

You can even use assets for liquid reserve requirements if you're able to properly ascertain and document it's value, like with an insurance policy.

If you a buying a house from a family member you may be able to substitute a gift of equity in place of a typical down payment. A gift of equity, rather than transferring cash from the seller to the buyer, transfers any remaining equity in the home as a credit to the buyer. If a house appraises for $100,000 but your relative offers to sell it to you for $80,000, the remaining $20,000 worth of equity may be able to be applied as your down payment. If you are considering using a gift of equity as a down payment be sure to discuss this upfront with your mortgage broker.

One source for a down payment is savings or investment. It can be prudent to wait to buy a home until you have saved enough for a down payment. The higher your down payment the lower your leverage and risk.

 

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