Move Up Buyer Planning
Tip #4 – Secure your down payment
You already know this – your down payment needs to be seasoned and verified.
If you don’t have enough liquid down payment, or if you don’t want to sell stocks & mutual funds and pay 30%+ federal and state income taxes, then here are some options to consider:
Use the equity of your existing home and your new home to qualify for an Abundance Bridge Loan. You may be able to borrow the entire amount of your new home purchase price, without any out-of-pocket down payment. This option is available whether you choose to sell your existing home, or keep it as rental.
Use the equity of your existing home as down payment on a new home. This option is viable if you have equity and you plan to keep your existing home as a rental. Keep in mind, however, the monthly payment obligations for your home equity line of credit (HELOC) or cash-out mortgage will reduce the amount of new loan you can qualify on your new home.
Gift from family members. Remember – it needs to be a gift. A loan (instead of a gift) from a family member will affect your debt-to-income ratio, and complicate your loan underwriting.
We do not recommend you using the following as down payment:
Loans from your 401K or IRA – Yes, you can identify your 401K or IRA as reserves for your loan qualification. We do not recommend using it as down payment, unless you have high confidence that you can re-pay these loans very quickly (4 to 5 months). You want your retirement assets to continue to grow, tax deferred, while you sleep. Plus, retirement accounts are generally protected from bankruptcy in case of a financial disaster. Protect your retirement.
Loans from credit cards – Don’t use expensive, short-term money to buy a home. The stress is not worth it.
Caution - if some of your down payment is in a crypto-currency, with a digital wallet, then verification may be more complex. Give yourself time to get the crypto-currency converted to USD or more commonly recognized asset.