Utilization of asset accounts and gift monies to fund a down payment on a house can go a long way in limiting your out-of-pocket costs. There are pros and cons to each source of additional funds, and plenty of stipulations regulating how you can go about using each of the sources toward the purchase of your new home.
Alternative Options To Help Fund a Down Payment on a House
Uncle Sam’s federal return in April is fully documented, traceable, and can be used as a valid source of funds for a down payment on a home.
There are different limitations of how much of the down payment can be gifted for each of the different loan programs.
- Conventional Loan: The entirety of a conventional down payment may be gifted if you are putting 20% or more down at the time of purchase. If you are putting less than 20% down, lenders will typically require that at least some of the down payment money come from your own pocket.
- FHA or VA loans: the entirety of the down payment can be gifted unless you are beneath a credit score threshold – typically 620.
Most lenders prefer any gift money to come directly from a blood relative. The gift money will also need to be traceable and may require the gift source to provide documented proof of the legitimacy of the funds.
Stocks, Bonds, Retirement Funds
Most investment and retirement accounts have clauses that allow you to use a portion of your funds towards the purchase of real estate without the typical penalty that you might incur upon early withdrawal. 401(k) accounts often waive early withdrawal penalties under these circumstances.
Rental Security Deposit Refund
Most renters have a significant amount of money tied up as a security deposit on their current residence, sometimes up to or exceeding the monthly rental amount. Provided this money is traceable through bank accounts, it can be immediately applied towards a down payment.
Selling of Personal Assets
Vehicles, boats, collectables, and so forth can be used as a valid source of down payment funds provided that the transaction and transfer of funds is appropriately documented and traceable. The items that you sell must also be legal!
Any cash-on-hand may be considered provided it is “seasoned” – i.e. held in a bank account for 60 days or longer prior to purchase of property.