The Down Payment: How you can get It? Or, do you even need one?

The biggest obstacle we as Realtors tend to have to help our clients overcome is obtaining the down payment which may be necessary to purchase their new home. It amazes me (and most of our agents at Smart Move Real Estate) how many potential homebuyers still believe they must save up 10% or 20% of the purchase price of the house. This is actually a fallacy and couldn’t be farther from the truth!

The fact is, there are still a couple loan programs available which allow potential homeowners the ability to purchase a home with ZERO down payment. However, you will have to meet some specific criteria to qualify for these loan programs.

The first of these 100% mortgage programs is the USDA Rural Development program. (Don’t let the name fool you. You don’t need to be looking for a farm in the middle of nowhere to use this program to buy a house.) Many suburban areas surrounding Baton Rouge will qualify for the use of a USDA Rural Development Loan. These include the demand areas of the Baton Rouge market area such as: Brusly, Central, Denham Springs, Gonzales, Geismar, Greenwell Springs, Port Allen, Prairieville, St. Francisville, Walker and Zackary.

If you are a qualified Veteran of any branch of the United States Armed Forces you may qualify for a 100% Veteran Administration Loan. VA loans allow individuals and certain family members of active duty, retired or even deceased veterans to purchase homes with zero down payment requirements. You can learn more about the requirements for obtaining one of these loans by using our helpful resource, Understanding the VA Loan.

BUT WHAT IF YOU DON’T QUALIFY FOR EITHER OF THESE GOVERNMENT LOANS? Well, all hope is not lost!

The advantage of an experienced Realtor is that we have the experience and understanding on how to overcome problems. And the fact is, in a real estate transaction, there is NEVER a lack of problems to overcome! But, unless a potential home buyer is able to fix the down payment issue, they will never need our experience to handle the rest of the issues that can, and will, plaque the average real estate purchase transaction.

So let’s start with the easiest alternative to “trying” to save up a large down payment.

A good option is to borrow the money from a 401k or other similar qualified retirement plan. Typically, up to 50% of the balance of the pension can be borrowed without the payment contributing to the borrowers debt ratio. This is because the remaining 50% would pay off the balance in the event the borrower fails to make the payments. However, also keep in mind that you would be subject to significant interest and tax penalties if the pension fund loan was not paid off. You may wish to speak with a tax professional regarding the pitfalls if this was to occur.

The next easiest option for obtaining a down payment is Gift Funds. A benevolent family member, can often times give you a gift of all of your down payment and closing costs. There is however a specific process for use of gift funds. It is important that you discuss this first with a highly qualified and experienced loan professional before the family member gives you any money for a down payment.

If you DO NOT have a benevolent family member who is willing to gift the money for a down payment, you can always sell off an asset that you currently own. This can be anything from a car or boat to gold, silver or virtually anything of value. But, if you are going to use this method to obtain your down payment, make sure you do it right.

The most important thing to remember here is that the process must be completely documented. You will need to prove that you owned the asset at least sixty days before you intend to close on your house. The bill of sale for item (with the buyer’s name and contact information) must be presented to the lender. Additionally, a record of the bank deposit for the EXACT amount of the sale of the item will be required. There are also other criteria which may be necessary in order to use SALE OF ASSETS for use as a down payment. I highly recommend you discuss this option with a highly qualified and experienced loan professional before you sell the asset.

What if you have the down payment…BUT IT IS IN CASH? People have many personal reasons for keeping their cash in a safe deposit box, under their mattress or even buried in mason jars in the back yard. However, the source and seasoning rules required to get a mortgage on any real estate requires that at least the amount of money you need for your down payment and closing costs be in a bank or investment account for at least SIXTY DAYS!

So, if your planning to purchase a home in the near future, it will be a good idea to get that cash into a verifiable bank account as soon as possible! However, if your down payment is in cash there are still ways to get into your new home without waiting the sixty day seasoning period. If your down payment is in the form of cash,  you may want to call one of Smart Move Real Estate’s agents to discuss your potential options.