Surprise Sources of Down Payment Money
According to a report by the National Association of Realtors, saving money for a downpayment was the biggest hurdle to overcome on the path toward homeownership.
Even though times have changed and a 20% down payment is no longer the norm, the average percentage put down was 12% in 2021. In Summit County, where the average sale price on a home is $ 1,374,181, that equals just shy of $165,000, which could take decades to save. So, how are homebuyers doing it? Let’s look at some unexpected sources of downpayment money.
Borrow From Yourself
You may have heard that withdrawing money from your 401k comes with some hefty penalties and fees, but that’s not the case if you intend to use that money on a downpayment for your primary residence. You have the ability to borrow from yourself via your 401k. You’ll have to set up a repayment plan and pay interest, but this is a great way to get yourself into a home using the money you’ve already worked hard to save.
The amount of money you are able to borrow varies, so give your 401k servicer a call to learn exactly how the process works.
Your Current Home
Are you already a homeowner? Use the equity from your current home to buy another. Home values in Summit County have exploded and are up 32% compared to this time last year. Why not put that equity to work, especially if you are planning to purchase an investment property.
You can access your equity by taking out a home equity line of credit (HELOC) or a cash-out refinance.
Similar to borrowing from your 401k, going this route is essentially borrowing money from yourself, but it will allow you to get into a new home sooner rather than later.
Your City Or State
If you’re willing to put in some time and effort, you may be able to get grant money or down payment assistance from the city or state.
This money is sometimes attached to a city’s neighborhood development program or through down payment assistance programs offered based on your loan type. In most cases, you will have to repay the money, so it is more like you are receiving a loan to cover the down payment. So, while you aren’t getting “free money,” it will still make it easier to get into a home of your own and start reaping the benefits of homeownership.
For more information and for a list of down payment assistance programs and grants offered through the FHA, click here.