subject: Thinking Out Of The Box With Down Payments [print this page] It can be quite a challenge to save up enough money to make a 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.
The amount of your down payment depends upon many criteria, but two come to the forefront. Depending on these two factors, you could be making a small down payment or a larger one to get the home you've been wanting to buy for years.
Number one factor is your credit rating. If your credit rating is relatively high, your down payment should be lower.
Price. The total cost is another primary concern here because in essence, down payments are taken as a percentage of the home's selling price.
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. Fortunately, many first time buyers have already been saving up for their down payments, but don't realize it.
Time To Get Creative!
Use the concept of the "bank of you". The federal government looks very favorably on home ownership. Because the federal government thinks so highly of home ownership, the real estate market is promoted extensively through little incentives and breaks in the tax system. If you have heard of 401k savings plans (and you sure have), there's a twist in the laws that could help you get a break. In effect, you could be borrowing from yourself due to this quirk.
Let's get some of the concepts down first if you're not too familiar with these plans - first, you can borrow up to 50 percent from your account in most 401k savings plans. For example, if in the past several years you've saved $25,000 in your 401k plan, then you can borrow an amount up to $12,500. This, of course, should be used for the down payment on your home. Here's the dandy part about this - you can save all the worrying about paying back the loan once you're settled in your new home - and you have home equity loans or paying back the 401k funds over five years as options.
In essence, you have used your 401k money to play a shell game with the down payment. In the end, this creative down payment funding strategy gets you over the down payment hurdle and into your home.
by: Eric Steffan
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