As outlined in our section titled Types of Loans, you may be able to qualify for loans at 97% or even 100% of the purchase price of the property you buy. Even if you qualify for these loans, however, you’ll need some cash to finalize your home purchase. If you don’t currently have the cash in hand in your bank account, here are some thoughts on where you may be able to obtain the cash you need to purchase a home. We list a few options below, but please don’t even consider pursuing any of these options without reviewing them first with a knowledgeable loan officer. The rules that govern the mortgage lending industry are very restrictive with respect to where the buyer obtains the cash required for a real estate purchase. If you have the money, but haven’t followed the rules, you won’t get the loan.
Having said that, it is probably worth noting here that most mortgage loan programs require a review of only 2-3 months of bank statements in determining where you came up with the cash to purchase your home. Whatever the ultimate source of the cash, your lender will probably be oblivious to it if you’ve had the cash in your bank account for more than 3 months.
Some suggested sources of cash for your home purchase:
Gifts from Family Members
Some loan programs, and FHA programs in particular (see Types of Loans
), will allow family members to give you a gift of all or part of the money you’ll need to purchase your home. If you have family members who are this generous, they will generally need to sign documents indicating that the money is a gift and that they are not expecting repayment from you. You will also probably need documentation that the money was withdrawn from the bank account of the person making the gift before it was deposited in your account. Talk to your mortgage loan officer and follow their instructions on how to do this.
Selling Other Assets
You can sell stocks, mutual funds, your car or just about anything else you own to raise the cash you need to purchase a home. If you do this while you’re looking for a home, or shortly beforehand, you may need to have detailed documentation of the sale and the transfer of the money into your bank account.
Write Yourself a Check Against Your Credit Card
If you do this after you’re under contract to buy a home, you’re probably not going to get the loan. If you do it far enough in advance (as in 3 or 4 months), the lender will just see cash in your checking account and a certain amount of credit card debt. If the debt isn’t too high, they will probably remain blissfully ignorant of where the money in your bank account came from and approve your for the loan. Again, if you’re doing this, talk it through with a good mortgage loan officer before you do it.
IRA, 401(k) or other Retirement Funds
Check with your accountant, your loan officer, and your fund administrator, but in many cases you can withdraw certain amounts of money penalty free from retirement accounts if the money is used for the purchase of a primary residence. In some cases, you can even borrow money against these accounts and pay six or seven percent interest on the money you’ve borrowed back into your own retirement accounts.
There are a wide range of programs available to help buyers who are short of cash buy homes. See our section called Assistance Programs