Where to get downpayment money
for a home loan

It may be difficult to find the funds for a down payment. It would seem that for the most part, the days of the zero down payment loans are gone. However, with mortgage rates at record lows and home prices having declined a bit in the Columbus and central Ohio area, now is a great time to buy a home. It is a buyers market and home prices in the central Ohio area are fantastic!!

Current loan requirements for down payment, typically between 3 to 5 percent minimum, have made it a bit more difficult to obtain the initial down payment requirement for a loan. Also, if you are a current home owner you may not have as much equity in your current home to apply to your next purchase due to the recent drop in home values.

So where can you get the money you need for the down payment on a loan? Below are ideas on where you may be able to obtain the money you need for a down payment:

Places to get home loan down payment money

• Retirement Accounts: Depending on the type of retirement account there could be a cash fee for early withdraw or you may be able to withdraw without a fee. A traditional IRA allows first time buyers, including someone who has not owned a home in the past 2 years, to withdraw up to $10,000 without a penalty. You may also be able to request a partial refund of money paid in during the past year without penalty.

• Gift Funds: People can give you money as a gift. It can come from:
  
  1. The borrower’s relative
  2. The borrower's employer or labor union
  3. A charitable organization
  4. A governmental agency or public entity that has a program to provide homeownership assistance to low- and moderate-income families or first-time homebuyers
  5. A close friend with a clearly defined and documented interest in the borrower

• Employer Assistance: to attract or retain valuable employees, an employer may pay the employee's closing costs, mortgage insurance premium, or any portion of the cash investment. A salary advance, however, cannot be considered as assets to close since it represents an unsecured loan.

• Stocks and Bonds: The sale of currently held stocks or bonds. The monthly or quarterly statement provided by the stockbroker or financial institution managing the portfolio may be used to verify the value of these securities. Actual receipt of funds must be verified and documented.

• Sweat Equity: Labor performed or materials furnished by the borrower before closing, on the property being purchased, may be considered as the equivalent of a cash investment, to the extent of the estimated cost of the work or materials. (Sweat equity may be "gifted" subject to the gift requirements and additional requirements shown below.) Additionally, the following apply to sweat equity:
  
  1. On existing construction, only the repairs or improvements listed on the appraisal are eligible for sweat equity. Any work completed or materials provided before the appraisal is made are not eligible. On proposed construction, the sales contract must indicate the tasks to be performed by the homebuyer during construction.
  2. The borrower's labor may be considered as the equivalent of cash, if the borrower can demonstrate his or her ability to complete the work in a satisfactory manner. The lender must document the contributory value of the labor through either the appraiser's estimate or a cost estimating service.
  3. Delayed work (on-site escrow), clean up, debris removal, and other general maintenance cannot be included as sweat equity.
  4. There can be no cash back to the borrower in these transactions
  5. Sweat equity on a property other than the property being purchased is not acceptable. Compensation for work performed on other properties must be in cash and be properly documented.
  6. Evidence of the source of funds used to purchase and the market value of the materials must be provided if the borrower furnishes these.

The information provided above comes from the HUD 4155.1 Handbook. This Handbook describes the basic mortgage credit underwriting requirements for single-family (one to four units) mortgage loans insured under the National Housing Act. Also referenced is IRS publication 590 Individual Retirement Arrangements. Since IRAs can vary, we recommend you consult a tax accountant for specific details prior to withdrawing from your IRA.