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For most individual coming up with a down payment will generally be the biggest challenge when buying a home after a divorce. A good place to look for a source of funds for a down payment would be your 401k, IRA or Roth IRA. You will have to check with your 401k plan to see if you can borrow or withdraw money from the plan. If you are allowed to withdraw the money there will be a 10% penalty and taxes due on it. The 10% penalty also applies to your IRA and Roth IRA except that no taxes will be due on the Roth IRA. If you are 591/2 and older there is no penalty.
Another source of funds would be gift funds from family members. When you accept a cash gift for a down payment on a home, there's a 3-step process to follow. The process is the same whether your home loan will be Fannie Mae, Freddie Mac, FHA, VA, or the USDA loan.
First, write a gift letter that follows the includes the following information :
- The amount of the gift
- The subject property address
- The relationship of the gifter to the giftee
- A note that the gift is actually a gift and not a loan
Second, transfer the funds to your bank account or to escrow office handling the closing. Be sure that the transfer amount is the same as the amount on the gift letter.
Third, the giver(s) will need to provide proof of funds transfer to the lender. You or the escrow office will need to provide proof of receipt of the funds. Check with your loan officer for exactly what documentation will be needed for proof of funds transfer. Also, your loan officer can provide a blank form gift letter for your convenience.
George Runnels
Washington First Mortgage
Mortgage Specialist
206-604-4545
License # MLO-89761
