Buying a House With No Down Payment
BUYING A HOUSE WITHOUT SAVING FOR A DEPOSIT
Haven’t saved for a down payment to buy a house? Or need a little more in order to make your dream of buying a home possible? You may still have options.
Don’t be sidelined from the real estate market continuing to stash small amounts away in the form of savings for a down payment.
You have options of receiving a Gift or borrowing against your 401k.
A buyer can receive a gift from a person that the buyer has a strong relationship with (this is for most programs). Gifts are not acceptable for all programs so this is something that you would want to reach out to a mortgage banker to discuss more with.
A gift of cash (actual dollar bills!) can difficult the gift process. This is an example where the funds would need to be seasoned.
In most cases a buyer can pull from their 401k. This is something where the buyer will want to check with their provider or HR department to see what the plan offers. A lot of times this is an interest free loan that is in most cases have no tax implications.
Saving 20% for a down payment is near impossible for a lot of first-time home buyers… Especially those located in expensive markets! It’s important to know that you always have options!
Transcript of Video:
- Can I still buy a house without saving for a down payment? Hi, I'm Jeff Chubb. We got Jason Bonarrigo here today. Today we're talking about down payment options with 401ks and gifts. And be sure you stick to the end of the video in order to figure out what we're gonna do with this thousand dollars with your help. So Jason, do I have to save for a down payment in the traditional sense? Do I have other options?
- You always have options. A lot of times clients don't know that, but they don't have to save up paycheck by paycheck. They have alternatives there. And one of the main ones is gift, right? A nice mom and dad, some grandparents, but seriously family, friends, close relatives, they can give what we call a donate or a gift and give you that in the form of a gift letter. We walk them through that and they can use that for their entire down payment in a lot of programs.
- Okay, so only in a lot of programs, not all programs?
- Not all programs no.
- Usually those first time home buyer programs, FHA, sometimes a MassHousing, or a local state program that they'll work as well.
- Okay so situations, need to reach out to the mortgage banker, ask about gifts.
- It's always particular.
- Of course.
- So can anyone, just anybody give a gift as down payment?
- No again, it's program specific. Most programs, obviously they want to show what we call a strong relationship. So it can be a fiance. It can be a close family member, an uncle, obviously mom and dad of course. That's the number one that we see all the time. But yeah, if you've had someone to "Hey this guy has been in, our family friend had been in there for a long, long time, and you can document that or kind of show that, it's fine. It just can't be--
- So Ted off the street can't give you a down payment.
- Ted off the street can't give you the boatload of cash. No, no unfortunately.
- So can I give you cash? So like say if I was gifting you cash in order to use for my down payment, can we do that?
- Cash is not always King as we joke about in some other videos, but you would have to go through the seasoning program. And again, I think your question is we do have to document the gift.
- So if you're giving me a gift, then we would ask for maybe a proof of the balance in your account or some receipts. We want to see a balance there.
- So you need that from the gifting person.
- From the gifting person. We call it the donor's ability to give.
- It's pretty easy.
- so be sure to check out that seasoning video 'cause the seasoning of funds for your down payment, that's a really great business.
- We go into a little more detail.
- So talk to me about 401k.
- So mom and dad, they're not available in order to give me a gift,
- They're all tapped out.
- but I've got a bunch of money in my 401k so I can pull from it.
- Yes you can. In most cases again, I always tell everyone to check with their provider, check with your HR personnel department, and see what the plan offers, your retirement accounts. But a lot of times the 401k is the best way to go because it's interest free. You're paying yourself back. And in most cases, as a first time home buyer or as a primary residence home buyer, there's no tax implications. And you can take up to the vested amount sometimes 20, 30, $40,000.
- What about a hardship. I've heard about hardships and 401Ks.
- Yeah, hardships are not ideal but again, if it makes sense meaning that you have two out of the three of the big three, the good credit, the good job, and you're young enough, then I'm not totally opposed. Again, talk to your accountant and talk to some other professionals, but I'm not totally opposed to that hardship withdrawal. If you have to take out 20 or 30 grand and you're relatively young enough to make that up, the tax implications are not that bad and you can get your dream home, hey.
- You get your dream home, which is also gonna appreciate in value,
- it's a huge tax benefit for you.
- So there--
- In the end it evens out. You don't want to take a hardship withdrawal when you're 50 or 60, but in your twenties or thirties, you want to take a good look at it if that's your only option, because again as we talked about before saving up that five, 10, 20% in this market in this day and age it's difficult. It's hard.
- Yeah, so basically everybody's situation is different.
- Of course.
- You do have options, whether it be getting a gift or pulling from your 401k, just really need to reach out to your mortgage professional, your banking professional, probably your financial advisor, as well as your accountant.
- And be really, really nice to mom and dad, so they'll give you that gift .
- Yes, yes exactly, exactly. So I'm Jeff Chubb, my team, the Chubb Homes team. We're programmed by eXp Realty. Jason?
- Jason Bonarrigo, RMS Mortgage in Boston. Cell phone 617-413-5038.
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