It's the ultimate American dream to own your own home, but many don't think it's an option because they don't have the money for the down payment and closing costs. There are many different ways to come up with the money. Here are tips for securing that down payment.
1) Borrow from your retirement account: Many people have been investing in a 401(k) plan or traditional IRA for years, and first-time homebuyers may borrow up to $10,000 for their down payment without incurring a penalty. For the self-employed -- or if your employer allows it -- you also can borrow up to $50,000 from your current 401(k) and pay yourself back over five years at a low interest rate.
2) Ask family: Sure, you may be too proud to ask for money, but if relatives can help you and your family move into that dream home, isn't it worth it? If you do get help from a family member, the lender will ask you to sign a gift-letter form, attesting to the relationship. The lender may also require your relatives to explain where they got the money and prove that they are financially able to make such a gift.
3) Look for down-payment-assistance grants: Down payment assistance and community redevelopment programs offer affordable housing opportunities to first-time homebuyers, low-income and moderate-income individuals and families who wish to own a home.
4) Negotiate a lease/purchase agreement: Although in current market conditions this is rare, homeowners may consider a lease/purchase agreement, where you rent the home you want to buy and a percentage of your rent is applied toward the down payment. If you go this route, make sure you get a contract outlining all the details so both parties are protected.
5) Add it to the wedding registry: Several mortgage companies allow those getting married to set up a down-payment registry. This is a great way to celebrate the joining of two people in holy matrimony.
6) Cut back and save: If none of the other ways will work for you, there's always the old fashioned "saving for a rainy day." Try putting aside 10 percent of each paycheck and make your meals instead of going out for them. If you're married, save the money you would spend on birthday, anniversary and Christmas presents and put it toward your house down-payment. You also may need to forgo that vacation this year.
Although some of these sacrifices may seem significant, they will be worth it once you're inside your own home. There are tremendous tax benefits when owning versus renting which will help lighten the load on your expenses. Plan well and homeownership may be closer than you think.
Linda Skolnick's "Skolnick's Scoop" appears every other Friday. She is a Realtor with Coldwell Banker Riverside in Westport and can be reached by calling 203-246-0088 or by through her website, www.GoAskLinda.com.