How to Finance a Down Payment

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If you are taking out a mortgage loan, you probably need a down payment. There are several ways to come up with your down payment. Many lenders do not want you to borrow your down payment. They have strategies to help you come up with a down payment when you don’t have one. Always review all your options to see which, most effectively, help you meet you goals of home ownership.

Determine how much of a down payment you will need. If you are purchasing a home, many lenders require a down payment of 20 percent of the mortgage loan. A loan of $150,000 requires a down payment of $30,000.

Reduce your down payment to lower the amount you need to come up with. If you arrange for a down payment that is less than 20 percent, the lender will require you to have private mortgage insurance, which provides protection for the lender if you default on the loan. You will have to pay the premiums.

Request the money as a gift. Sometimes you can receive a cash gift from a family member or a friend, which can be used as a down payment. When you get a cash gift, you have to provide documentation to the lender to prove this. A lender wants to make sure that you have not borrowed the money, which will increase your debt load. Too much additional debt can disqualify you from loan approval.

Tap into your 401k account. If you have been putting money away in a 401k account for retirement, gain access to the money. Two ways you can access the funds are by taking a draw on the account. The downside with a draw is that you will be penalized with taxes if the money is taken out before the appropriate designated date. Another option is taking money from your 401k in the form of a loan. This money has to be paid back, with interest. There could be a limit on the amount you can borrow.

Ask your lender about down payment assistance. If you are a first-time home buyer, you could qualify for down payment assistance. You may receive as much $8,000, which does not have to be paid back until the end of the loan. There are rules, regulations and stipulations that apply to these funds. Some states provide down payment assistance in the form of a grant.