Nov 2 2010
Down Payments Get Creative
One of the biggest hurdles to buying a home is the down payment. A lot of us will need to think out of the box when it comes to making down payments, so hopefully this article would help some.
First of all, there are two things mainly considered when determining your down payment. Each of these can reduce or increase the amount of cash you have to come up with for the home of your dreams.
The first would be your credit score. If your credit rating is relatively high, your down payment should be lower.
Price. Since down payments are a percentage of the homes total appraisal amount, the total cost would also be a major factor.
No matter how you look at it, down payments can be very costly. For many first time buyers, this is a huge hurdle to overcome. They skimp and save everything they can, but saving up many thousands of dollars can take time and be frustrating. But didnt you know, that if youre a first time buyer, you may be saving up already for the down payment without being aware of it?
Getting Creative
Did you know that you could end up borrowing from yourself? Home ownership is a favorable situation, regardless of which federal government official you ask. As a result, the federal government pushes the real estate market forward by introducing perks such as tax breaks and other incentives. We shall briefly discuss one of these perks, and this would be related to the laws on 401k savings plans. This is what is popularly known as borrowing from the Bank Of You.
With most 401k plans, you have the right to borrow up to 50 percent of the vested amount of your account. If youve managed to save $50,000 over the years in your 401k, you can take a loan from the account for up to $25,000. Now this money will be used to cover your homes down payment. The only time youll have to worry about paying the loan back would be after youve moved in – you can either pay the 401k loan back over five years or repay with a home equity loan.
In essence, you have used your 401k money to play a shell game with the down payment. This uncanny strategy would let you focus on more important things first and not have to worry just yet about paying the down payment.
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