Ever dream of owning a home but don’t think you can because you lack the down payment and closing costs? Here are a few tips:
- Borrow from your retirement account: A 401(k) or traditional IRA may allow a first-time homebuyers to borrow up to $10,000 for their down payment without incurring a penalty. If you’re self-employed or your employer allows it, you may also be able to borrow up to $50,000 from your current 401(k) and pay yourself back over five years at a reasonable interest rate.
- Ask family: If you are able to get help from a family member, the lender may ask you to sign a gift-letter form, attesting to the relationship. They may also require your relatives to explain where they got the money and prove that they are financially able to make such a gift.
- Look for down payment assistance grants: Down payment assistance and community redevelopment programs offer affordable housing opportunities to first-time homebuyers, low-income and moderate-income individuals and families who wish to own a home.
- Come to a lease/purchase agreement: Homeowners who can’t sell their homes may consider a lease/purchase agreement, where you rent the home you want to buy and a percentage of your rent is applied to the down payment. Make sure you get a contract outlining all the details so both parties are protected.
- Add it to the wedding registry: Some mortgage companies allow those getting married to set up a down payment registry.
- Cut back and save: If nothing else, there’s always the old-fashioned “saving for a rainy day.” Try putting aside 10% of each paycheck and eating at home instead of eating out. If you’re married, save the money you would spend on birthday, anniversary and Christmas presents and put it toward your house. You also may need to forget that vacation this year.
These sacrifices may seem significant but they will be worth it once you’re inside your own home.