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8 Creative Ways to Afford the House of Your Dreams

Not sure how to come up with a down payment for a home? Here are some options that may help you start your family's next chapter.

Buying a new home is exciting, but for first-time buyers, finding ways to come up with the down payment can be daunting. Most commonly, 20 percent of the purchase price is needed for a down payment, but not in every case.

 

When planning to buy the house of your dreams, be sure to speak with your personal loan officer to learn about affordable home loans. This way you will know how much you qualify for and the down payment needed to secure the loan. You can also download the First-Time Homebuyer's Guide for step-by-step instructions on getting your first mortgage.

 

With this information in hand, you will have all you need to pursue your dream home — except the down payment itself. Fear not; there are more ways than you think to secure a down payment. To help get you started, here are eight ways to afford your first home, including pros and cons so you can start to think about which way makes the most sense for you and your family.

 

1. Down payment assistance programs

 

Many first-time buyers are unaware of the many down payment assistance programs which may be available to them. For instance, if one of the family members is a veteran, the VA has programs to help. In most states and some local communities, there are additional programs to help first-time buyers. For instance, the Texas Department of Housing and Community Affairs provides assistance through the My First Texas Home (MFTH) program.

 

  • Pros: Many programs are available
  • Cons: Each program has strict eligibility requirements

2. Borrow against life insurance

 

If you have had a whole life insurance policy for more than three years, it may have accumulated cash value. The longer the policy has been in place and the larger the monthly premiums paid, the higher the cash value. You may then borrow against the cash value of the policy as needed to come up with a down payment on a home. Talk with your insurance broker about the best way to do this.

 

  • Pros: Quick and easy
  • Cons: If you pass away before paying off the loan, the balance will be withdrawn from the settlement paid to your family

3. Borrow against 401(k)/IRA

 

The IRS allows first-time home buyers to borrow up to $10,000 from certain IRAs toward their new home without penalty. Although the 401(k) is not included in this exemption, some have found they can roll part of their 401(k) into an IRA before disbursement in order to avoid the 10 percent penalty for early distribution. Talk with your tax advisor about the best strategy for you.

 

  • Pros: Quick, easy access to funds
  • Cons: Taxes will be withheld from the disbursement, so think ahead

4. Family gift

 

If you have an especially generous and wealthy family member, why not ask if they can gift you the funds needed for a down payment on your dream home? As of 2018, the IRS states that funds gifted up to $15,000 are not subject to taxation, so this may be a way for you to come up with the money needed to start your family’s next chapter, and potentially for the gifting family member to get a tax break.

 

  • Pros: May not need to pay back the funds, or may not need to pay back more than the amount borrowed
  • Cons: Asking family members for money can strain relationships

5. Downsize your lifestyle

 

Much as it may pain you to do so, forgoing that annual vacation and those small luxuries and making other lifestyle changes can make a big difference in your savings account. Consider this: If both you and your spouse stop getting coffee every morning on the way to work, you can save anywhere from $5 to $15 a day. Multiply that over a year, and you will save roughly $3,650 toward your down payment.

 

  • Pros: Lifestyle changes are somewhat easy to make and don't cost anything
  • Cons: Doesn't happen overnight; it will take time to develop a significant amount

6. Second-seller mortgage/Lease with an option to buy

 

Also known as seller carryback financing, this is when a seller desperate to get out from under a home loan may be willing to obtain a second mortgage of their own in exchange for direct monthly payments from the buyer. The mortgage rate is determined by the buyer and seller, but usually ranges from 8-15 percent on a seller carryback. Discuss this option with your bank prior to making an agreement.

 

  • Pros: May get in a new home quickly
  • Cons: May be higher than a market-based interest rate

7. Ask for a raise and dedicate extra earnings

 

If you have been on the job more than a year and have yet to see a raise, make the case for higher pay and then dedicate the added earnings to a savings account toward the house of your dreams. This article from Forbes shares some insider tips for successfully asking for a raise.

 

  • Pros: Higher earnings generally mean a higher new home loan is possible
  • Cons: A higher loan can mean a higher mortgage payment

8. Get a second job and dedicate earnings

 

If you don’t get a raise (or even if you do), you can always take on a second job until you have enough for a down payment. This is a common way many families obtain the funds needed for their dream home. America Saves, a campaign managed by the Consumer Federation of America, offers money-saving strategies that can help you come up with a down payment in no time.

 

  • Pros: This strategy works well if you're committed
  • Cons: This is another longer-term strategy that requires some time and patience on your end

Learn more about how to afford your own home

Although finding ways to obtain the down payment needed to afford the house of your dreams may be difficult, with a little ingenuity and hard work, you could have enough for a down payment faster than you think. If you have questions or want to learn more about getting a home loan from Cadence Bank, call 800-308-6709. Or, find a mortgage expert online.

 

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.

Cadence Bank, N.A., Member FDIC, Equal Housing Lender, NMLS # 525022

 

 



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