Finding a Down Payment to Buy a House
In today's real estate market, lack of a down payment discourages many would-be home buyers.
Most home buyers don’t have large cash reserves and will want to make as low a down payment as possible. While putting 20% down was once traditional, it's now rare. However, you'll need a high credit score to find a low-down payment loan, and no-down payment loans are becoming hard to find.
Still, there are advantages to putting some money down. You lower your monthly mortgage payments, and if you put 20% or more down, you avoid paying for private mortgage insurance (PMI).
If you haven't already saved up thousands of dollars, here are some ways to raise the needed funds.
Borrowing From Your 401(k) Plan
Check with your employer or its 401(k) plan administrator to see whether the plan allows for loans. If so, the maximum loan amount under the law is the lesser of one-half of your vested balance in the plan or $50,000 (unless you have less than $20,000 in the account, in which case you can borrow the amount of your vested balance, but no more than $10,000). Other conditions -- like maximum term, minimum loan amount, interest rate, and applicable loan fees -- are set by your employer. The Tax Code says you must repay the loan, with interest, within a “reasonable amount of time.”
Find out what happens if you leave the company before fully repaying this loan. If it would become due immediately upon your departure, you might have to pay income tax and penalties on the outstanding balance. But you may be able to avoid this by repaying the loan before you leave.
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