For many years, down payment has often been a barrier for homebuyers everywhere. Sometimes (see: rarely) actually a barrier and other times, just a lack of awareness of options.
As a mortgage lender here in Central Iowa, I've specialized in assisting first time homebuyers for almost 20 years now. And although some clients have a down payment saved up, it's more common that they don't. And that's okay.
I thought I'd offer some experience on where down payment can often come from, but isn't often understood or expected.
Most common, we see family members looking to assist with a gift. Gifts are completely acceptable and easy to document. Just be prepared to sign a letter stating the money is indeed a gift (not a loan) and is for the purchase of a home. Depending on the loan program the homebuyer is using, the gift may need to be documented in more detail by the person providing it.
Second to that, a lot of first-time homebuyers find themselves with an established 401K but no money for down payment. Personally, I hate the idea of someone withdrawing (and paying taxes/penalties) from a 401K for down payment -- but many people don't realize you can often get a 401K loan against the balance - and in most cases the interest on that loan is paid back to the account holder (so the buyer is basically paying themselves back with interest). It's a very simple and effective way to support down payment.
The last and frankly, most overlooked option; is local down payment assistance programs. Or, said otherwise, free money the government is giving. This is something that not all lenders will offer, but when the lender does offer it, and (frankly, most importantly) truly understands how to properly utilize the programs; it's a great option! With down payment assistance programs available in the state of Iowa, we can actually help buyers purchase homes with literally no money out of pocket. That isn't only for down payment -- but also the closing costs. And the loans are 30-year fixed without any surprises.
I personally recommend linking up with a loan officer who specializes in working with first-time homebuyers (even if you aren't -- their knowledge to structure low down payment options is extremely valuable!). Their experience will prove to be a huge asset to not only finding the most suitable path for the homebuyer, but also navigate the process of documenting the financing process.
The days of 20% down payments to buy a home are over. And the amount of wealth a homeowner can create has only gotten better. Don't let a down payment get in between you (or your friend/family/co-worker!) and buying a home!
If you have questions or are just curious about things, feel free to reach out to me. I'm a local lender and love answering questions! My email is [email protected], my number (call/text anytime!) is 515-257-6729 and my website is www.applywithtyler.com.
Tyler Osby is the Branch Manager for the Tyler Osby Team at Fairway Independent Mortgage Corp. Educator. Closet "Hip Hop BBQ" Pandora listener. Father of three very smart and very strong little girls.
The Tyler Osby Team at Fairway Independent Mortgage Corporation (NMLS #2289). Equal Housing Lender.
