If you're at the point where you're thinking about how you're going to finance your down payment for your new house, there are many different paths you can take to maximize your down payment in order to finance less of the cost, and therefore save you money overall on your home purchase.
The first, and most obvious place, to look to is your bank account. Figure out exactly how much you have in there to spare. Calculate every penny you will need for the time being, and use what can be spared towards the house. Keep in mind that this is the easiest place to get money from, and it relieves you of any kind of borrowing interest that you would have to pay. Other options like investment accounts and retirement accounts are easily liquidated, but can lower the amount you can borrow to buy your new home because it increases your debt. So be careful when using either of those two options.
If you have a certain amount of money that you stowed away for a rainy day, or if you received a gift from a family member to use for the down payment, be sure to have the source documented if you need to show proof to the lender. A lender can think that you borrowed the money from somewhere, and the lender might add it to your debt, which will raise your debt to income ratio (DTI). Other concerns from the lender could be that it was gathered through illegal means, and the first asset usurped by the government is the house. These are all negatives that you want to avoid when dealing with the lender, so be sure to have all your large deposits documented before closing the deal with your lender.
Dealing with joint accounts can be tricky. If the joint account is with your current spouse, then the entire balance of your account counts as an asset. But if you have a joint account with someone else besides your spouse, even if they're involved in purchasing the house, proof must be brought that states that you, yourself has complete access to the full amount of the account. If you can prove this, then the account can be counted as an asset.
Some other options that may come into play are Certificates of Deposit (CDs), Stock Options, Treasury Notes, and Savings Bonds. All of these carry early withdrawal penalties, or they may decrease the amount of money you would have earned on them if you end them early, so be sure to use these measures as a last resort, and weigh them against how much you would save by having a bigger down payment to save on interest fees.
Utilizing a 401k or an IRA to your advantage can also be a good option when trying to maximize your down payment. Using the 401k, you can choose between withdrawing the full amount of your account, or taking a loan against the 401k amount. Withdrawing is generally not a good idea because you have to pay a tax penalty on it, and some companies have a 1 year mandatory suspension on your participation in a 401k program. Taking a loan against it might be a better option. You are limited to only borrowing against 50% of the vested amount in your account, and you can only take out one loan at a time against it. Also, if you switch jobs and neglect to roll over the account after you do so, the loan may be called up, or worse yet, the loan will be switched to a withdrawal, and you'll be taxed. So be careful and make sure that this option won't bite you in the end. An IRA can also come into play, but there are heavier restrictions on it. You can withdraw up to $10,000 to buy your first home, but normally you can only do so after you've had the account for more than a few years. You definitely want to speak to an account representative before utilizing either of these options.
If you have this option, using other real estate sales can also help you with your down payment. But make sure you calculate your total profits correctly from the net profit of your real estate sale. Lenders will automatically lop off 10% of the total sale for transaction costs. However, the percentage will shrink if you sell it yourself, as a major portion of that 10% is for an agent fee. So selling it FSBO can definitely help your bottom line. Other outstanding balances from your other mortgages (if you have any) will also be subtracted as well, along with any prepayment penalties that you may recur. A simple way to calculate the profit from the sale of your house is that you take the selling price and subtract the sum of the purchase price, subtract money spent on major home improvements, and subtract the transaction costs. Then check your exemption to see if the profit is tax exempt. Single homeowners receive a $250,000 exemption from taxes, and married homeowners get a $500,000 exemption. Unless you sold an expensive home over one of these two figures, the 20% tax rate won't come into play.
So you have many options to choose from when preparing your down payment figures to bring to the lender before closing on a mortgage. Maximizing your down payment allows you to save a lot of money over time, and also helps you maximize your profits if you sell your house in a few years, since you'll owe less on your mortgage.
| 
Signup
Login
