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Chicago First Time Home Buyer: Three Often Overlooked Home Down Payment Sources

Topic: Home buying

We all know right now is a great time to buy a home. Rates are low, home prices are low and the first time home buyer tax credit is still available. One of the obstacles many Chicago first time home buyers face is coming up with the money for a down payment. There are three sources for a down payment that many first time home buyers overlook.

1. IRAs

The IRS allows a first time home buyer to withdraw up to $10,000 from an IRA penalty free and tax free. For a married couple this means, each spouse can each withdraw $10,000 with no penalty, which would allow you to withdraw $20,000 to put down on the home. If you do not have an IRA a family member may be able to help you. Family members are allowed to withdraw money from their IRA to use toward the down payment of a home for a first time home buyer. The IRS will allow a first time home buyer, their spouse, a child, a grandchild, a parent or other ancestor, to withdraw up to $10,000 from their IRA penalty free and apply it to the purchase of a home. One thing to be careful with is when you withdraw money from your IRA. According to the IRS you must use the IRA funds within 120 days toward qualified acquisition costs. These costs include buying, building or rebuilding a home. along with normal settlement, financing or closing costs.

The IRS defines a first time home buyer as someone who had no present interest in a main home during the 2-year period ending on the date of acquisition of the home which the distribution is being used to buy, build, or rebuild. If you are married, your spouse must also meet this no-ownership requirement." What this means is this does not have to be your first home you just cannot have owned a home for the past two years.

The rules for a Roth IRA are different. The $10,000 taken out for your first home is a qualified distribution as long as you have had your Roth account for 5 years. This means you can take the money out of your Roth penalty free and since your Roth earnings are tax free you won't have to pay the IRS either.

2. The 401K

The second source for your down payment is to borrow money from your 401k.I have worked with several clients in the past who were paying in to a 401k but had not considered using this money towards their down payment. Many 401k plans will allow you to take money out for the down payment on a new home. The 401k does have downside to it. Unlike the money you take out of your IRA you will have to pay back the money withdrawn from your 401k. 401k plans can differ slightly so be sure to consult the 401k plan administrator to see how the payback works.

3. Borrowing Money from Family or Friends.

Yes I know most people think of this option but many people are afraid to ask friends or family for money especially with the current economic issues. Buyers picture the conversation with Mom and dad we and just cringe. On the surface it is not a bad request and if your parents or other family members have the money maybe they would consider giving you a loan for your down payment. As many of you know the government is giving a tax credit of up to $8000 to first time home buyers. What if you were to try the following approach?

"Mom and dad have you heard about that first time home buyer tax credit the government is giving? John and I have been looking at homes and right now we do not quite have the down payment required. We were wondering if you could borrow us the money we are short for our down payment with the understanding that once we get our first time home buyer tax credit we will repay you what we borrowed?"

Not only have you told them that you intend to repay them but you are also telling them how. Now if mom and dad do not have the money there is not much you can do. Maybe other family members would be willing to help you get into your first home.

Like i said borrowing money from family members is nothing new but it does come with some additional pain. Approaching the repayment of the money you borrowed with a government tax credit now that is a bit different. In reality you may only need to borrow the money for 3-6 months depending on how long it takes to get your tax refund.

The first time home buyer tax will expire in April of 2010 so do not wait too long to try this approach. This deadline means you will need to have a contract on the home you intend to purchase by the end of April and you will need to close by June 30,2010.

by Roy Paeth

01/13/2010
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Dharmendra
This makes everything so completely panielss.
read more... 03/28/2013

Marcela
guys my budget is near 100k (2200$ USD)but i don't know what to buy DSLR,SLR,Camcorder,any types of lens,body + lens or what so need your pecfert advicei want cam for indoor picture ,still photography,close up and when go for tour that time for long view picture like mountains, seen scenery, or any kind of big temples or buildings. also need to record some video like birthday party or we going to any park,zoo, amusement park ,water park that time family videos so i don't know what to buy i need to buy any single cam or two cam like one for picture and one for video recording or its will work on single thing.my main thing is that i must want best picture and video clarity and quality because this my first and last buy for 3 to 4 years i am able to use any kind of cams if i don't then i learn for it so please suggest me technically what is best for memy most usage of cam for picture but video at some occasionmy budget is 100k. but if u suggest my wanted thing that make me happy in lower budget then i don't mine i just told u my max budget that's it i don't want to cross this limit but thing is that what to buy its in your hand to guide me please. I don't have any Professional experienced about lens and body so please suggest what type of lens body or cam have to buy good for me will learn every thing after buying this thingi used many camera but don,t have any professional experienced with photography but i am able used any type of camera with help of video tutorial or i go to learn any professional institute for photography if i think i need to know usage of camera or about camera ,because now photography is my craze and i wanted to go deep in this thing, but this is my first step to buy a good camThanks in advanceI know Canon and Nikon are best but i need suggestion on model lens ect.
read more... 10/01/2012

Nancy
Likely you are talking about your samlsean license, not a broker's license, right?If that is it a Broker MUST hire you since you can not operate independly without a brokers ticket'.Many brokers will hire salespeople as independent contractors.. (no salary.. just commission) so it is a cut-throat business for them.good luck
read more... 05/04/2012

Semen
A; it is not wise to take the PRE licensing couerss on line; you will need to absorb a lot of datathat only? an attending school and teacher can provide for renewal hours, that is dif.b; few RE brokers are lucky enough to find experienced agents who are transferring into theirarea.c; one does not get exp, one just DOES.
read more... 05/04/2012

Ayu
Dear Adam,I'd be eager to speak with you and other BYU stnduets about the ICSC stnduet membership program. ICSC is the global trade and professional association of the retail real estate industry. We have a great stnduet program, priced at $50 for a calendar year. With this, you recieve full membership benefits including access to our membership directory (personal contact info and meeting attendance of our 55,000 members), access to the ICSC job board, access to our proprietary database of statistics and research publications, a subscription to Shopping Centers Today, plus reduced registration rates at ICSC meetings .you can attned our meetings, including the huge meeting in Las Vegas in May for only $50. Please let me know if I can provide information to you or others in the Real Estate Club. I am at and 646-728-3490.
read more... 05/02/2012

Read all comments: 8

 

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