Down payment

Quick Ways to Come Up with a Down Payment

Although the best way for first-time homebuyers to come up with a down payment for a home is to save for one, sometimes you’re in a hurry. Maybe your dream house just popped up on the market or you no longer are satisfied with being a renter. 

Whatever the reason, you’re ready to buy a house now. But while your credit is good and your career is stable, you still need to come up with that big chunk of cash for a down payment, and here are five ways to help you do just that. 

1. Turn to your 401(k)

If you’ve been saving money in your 401(k), it’s possible to borrow from that for a home loan—and get that cash in hand fast. Most 401(k) plans allow you to borrow up to 50 percent of the vested balance, or up to $50,000, and it takes about a week. 

But it will cost you: If you take funds out of your 401(k) early—that is, before you’re 59½ years old—you’re going to incur a 10 percent penalty on that withdrawn money. And it counts as gross income, which can bump you into a higher tax bracket. In addition to penalties, most companies require you to repay that vested money over five years—or sooner if you quit or wind up unemployed. So be sure your career is on good footing.

2. Crack your IRA

Dipping into your IRA usually carries the same 10 percent penalty as your 401(k), but there’s one major difference: The penalty doesn’t apply to first-time home buyers. And unlike a 401(k), you don’t have to repay what you take out of an IRA. However, the withdrawal is still taxable.

Plus, there’s the matter of not repaying yourself, which can harm your long-term retirement. So, if you take out a sizable amount, restoring this nest egg to its former level will take you many years.

3. Ask your boss

Ask if your company has an employer-assisted housing program. Think about it: Companies hate employee turnover, so what better way to keep you around than pitching in to help you buy a home? It’s a win-win: Home loans often are low- or zero-interest, and usually are structured to be forgivable over a period of time, often five years, which further encourages employees to stay put. The downside? Not all employers offer it. Hospitals and universities sometimes do, so be sure to ask to avoid overlooking this ready source of financial assistance.

4. Explore state and city programs

There are numerous local assistance programs that can help you come up with funds for a down payment. Offered either by the state, city or nonprofits, these programs often partner with banks. You’ll need to qualify, however. For NeighborhoodLIFT, for instance, your household income has to be no more than 120 percent of the median in your area.

5. Get a gift from family or friends

Many home buyers turn to their family for help buying a home because there are no limits on how much a family member can “gift” another family member. But only a specific portion can be excluded from taxes ($14,000 per parent). Know that it’s not that simple, though. Gifters (even family members) will need to provide paperwork in the form of a gift letter. And if the gifter is a friend, it gets even more complicated. For example, you’ll have to wait about 90 to 120 days before you can use any of those funds. 

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