Where is Your Down Payment Coming From?

Moving-up, where’s the big down payment coming from?

So, you decided it’s time for a change of house. But now for the million-dollar question, where will you get your down payment from? When you bought your first house, you probably had been saving up stashing away money to come up with the down payment. Maybe you had gift funds from a family member or you used a first-time homebuyer grant or other down payment assistant programs.

Now that it’s time to move up to another bigger and better home. You need to think about a down payment all over again. Now I know you are probably thinking, well, of course, I’m gonna use the down payment from my current home sale. But if that’s the case, have you thought about how those logistics will workout? There’s much to think about when planning for a move-up purchase. The biggest of which is the source of the down payment. For some, you may be lucky enough to have another source of funds readily available, maybe even a full cash payment, but in most cases, the down payment funds are often tied up in the equity of your current home.

That means having to work out the details of the sale of your current home to free up the equity to use as a down payment on your new one in a slower market, you can list your home for sale and then start the buying process while your home sits on the market, making an offer contingent on the sale of your current home when you find the right house to buy. But in a fast-moving seller’s market contingent offers are not often accepted and seller’s homes are going under contract at lightning speed. This makes it tricky if your home sells in a matter of days but you haven’t yet found the right new home to purchase. Where will you move to if your current home closes before the new one?

Now is a good time to get creative and think about down payment options. Talk with your favorite Grand Rapids area lender or ask a realtor for a referral to a great one. Lenders may have creative options you didn’t even know about like bridge loans, credit unions that offer loan modification options for up to three to six months after closing, or even borrowing gift funds from a family member can all offer alternative solutions besides just getting cash from the sale of your current home. Make sure you speak to your lender though and follow their instructions regarding any gift funds, so you don’t have any issues in underwriting.

Do you have other sources of funds besides the equity in your current home a loan from a retirement account or a money market or other long-term savings accounts that you generally don’t touch but could use for the short term then refund after the closing of your home? Always consult a CPA or other tax professionals to ensure that you understand any potential tax implications from this option.

Maybe you can get, pre-approved not contingent on the sale of your current house, borrow funds from another account you already have for the down payment. And then after you get the new home closed you sell your current one and use those funds to reimburse your other savings or investment accounts. There could be many options out there besides just getting cash directly from your current home equity.

No matter what the source of your down payment will be looking into all of the logistics of sourcing the funds before seriously looking for a new home. Now, when you find the perfect new home, you have a plan of action already in place and you can move quickly on making an offer.