You’ve been dreaming of buying a home for a while. You know you need to put down a huge chunk of change upfront. But you’re not sure how you can ever save up enough money for the down payment. Besides the obvious, your savings account, here are other sources of funds that you already have but just aren’t aware that you can access them to purchase a home:
– Equity: If you already own a home for quite a few years or a lot of years. Your home may be worth a lot more than what you bought it for today. Equity is the difference between the current market value minus the current loan balance. Lenders out there can allow you to use either a refinance, bridge loan, or HELOC (home equity line of credit) to use as a down payment towards their next home. Of course, consult with your loan officer and or financial planner to see which route is best for you.
– Gift funds: If you have generous parents or relatives like a rich uncle, who want to help you out. They can give you some money as a gift for your down payment. How awesome is that? But there are some rules you have to follow. You have to get a letter from them saying how they are related to you, how much they’re giving you, where the money came from, and that they don’t expect you to pay them back. You also have to show where the money came from and where it went.
– Stocks, bonds, mutual funds: If you already own any of these investments. You can either liquidate them by selling them off or possibly take out a loan against them if you have a substantial amount.
– 401k, IRA, or other retirement accounts: If you have a retirement savings account, check with your custodian if you can take out a loan from your own account to purchase a home. Most common is either 50% of the available balance or $50,000 whichever is most. You will pay yourself back over time with interest. It is very important to understand all the terms, repayment requirements, and possible penalties involved.
– Selling assets: Sell some of your stuff, like cars, motorcycles, boats, collectibles, crypto, or anything else that has value or you aren’t using very much anymore. You can use online platforms or apps to find buyers and make some cash. But remember, you have to prove that you own and sold the stuff and where the money went. You also have to think about any costs involved in selling your stuff, like fees, commissions, or taxes.
– Life insurance: it’s not just for when you’re dead. Most people don’t know this, but you can actually borrow against your life insurance policy to access the cash value in your life insurance to use for something like purchasing a home. This is typically only available to either universal or whole life insurance policies. If you have either of these types of life insurance policies, speak to your insurance agent and inquire if you have any cash value to borrow from yet. It does take a bit of time to build up the cash value.
So there you have it, these are some places that you might already have but just never knew that you could tap into them to fund the down payment of a home. But before you decide which option to use, make sure you weigh the pros and cons of each one and how it will affect your overall finances. You should also talk to a mortgage lender or a financial advisor to help you figure out what you have available and how to best utilize it to purchase your home.