The Down Payment: How Much Do I Need?
Of all the questions you may have about buying a new home, perhaps the biggest one is this: How much money do I need?
To buy a home, you'll need a down payment, closing costs, pre-paid items and reserves. The amount of each of these will vary, depending on which type of loan you choose. Your actual out-of-pocket costs may differ. Helping you find a way to finance your home is what we will help with – as well as working with a mortgage professional to come up with a financing plan that makes sense for you.
Where to Get Your Down PaymentNot wanting to dip into (or not even having) a nest egg can keep you from pursuing your dream of owning a new home. While the obvious source of money for your down payment is either your savings or the proceeds from the sale of your existing home, there are alternatives. Here's a look at some not-so-obvious sources for funding your new home:
Life InsuranceIf you've built up a cash value on your life insurance policy over the years, you may be able to borrow money from the policy, up to the amount of the accumulated cash value. As an added bonus, your policy loan may offer a more favorable interest rate than other types of loans.
Stocks and BondsCashing in your stocks and bonds is another option to consider. But even if you feel the market doesn't favor selling right now, you may still be able to secure a bank loan using your portfolio as security.
Company Profit-sharing or Savings PlanIf you participate in a profit-sharing or employer-sponsored savings plan, consider withdrawing from your account or borrowing against if you can.
Parents and RelativesYour parents may have a considerable amount of equity built up in their home; and, if they’re willing and able, they could perhaps give you the money by taking out a home equity loan. A 1981 federal tax law permits tax-free gifts from parents, so be sure to talk with your tax adviser first. Also, be aware that your lender may require a "gift letter" verifying that your parents don't expect repayment. Plus, you won't want to forget to plan for these other out-of-pocket expenses:
- Closing costs.
- Moving expenses.
- Appliances and household setup.
- Reserve for emergencies and miscellaneous items.
In other words, don't put your last penny down at the closing table. Talk to your home mortgage consultant for more information or for help in planning the financing for your new home.