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 December 19, 2007

Three Places to Find Money to Put Towards A Down Payment
More and more lenders require at least 20% down on a home in order to grant a loan, making it increasingly difficult to buy a home. Below are some sources of funds that are still available and both the pluses and minuses of using them.
1. Borrowing from a personal 401 (K) account. Some companies allow this. The maximum amount available is $50,000, $100,00 if both spouses have 401 (k)s. The loan must be repaid within 5 years. If the loan is not repaid in 5 years, than the amount is considered a withdrawal, which makes the borrower liable for federal in income tax and penalties.

2. Withdrawal of up to $100,000.00 from an IRA for a first-time home purchase. If both spouses have IRA's, they may withdraw up to a total of $20,000.00. Potential buyers that have not owned a home in the past three years are considered first-time buyers. Federal taxes must be paid on the amount of the withdrawal at the borrower's current marginal tax rate.

3. A Gift. Buyers who are comfortable asking for money from their parents, relatives or friends can give a gift toward the down payment. In order for a lender to approve it, the person(s) giving the gift must sign a gift letter which states that the amount of money given does not need to be repaid.

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