How do I come up with a down payment for a house?

How do I come up with a down payment for a house?imgres-1

Finding money for a down payment on a home can be a challenge for some homebuyers.  A large sum of cash can be hard to find. To make things more problematic, you cannot borrow for your down payment, and you must be able to prove the source of your money to a lender.  So, how do you come up with thousands of dollars? Here are some possibilities:

1. Your savings account – Set an attainable goal and plan to set aside a specific amount of money each payday to meet that goal.  In addition, here are some ideas that you can follow to assist you in saving for that your down payment:

  • Get a second job and use that money for your down payment
  • If you plan to use your next tax refund for this goal, consider adjusting your withholding so you are bringing more money home in your paycheck.
  • Clear out the clutter. Look around at some of the things that you have accumulated but really don’t need. Garage sales, ebay, and Craigslist are all ways to sell used items.
  • Save your coins.  Find a large glass container and throw all of your change in it at the end of every day.  Once a month, clear it out and place the money in your savings account.  You will be amazed at how quickly this adds up.
  • Gift giving. If you want to save money while also giving generously, create your own homemade gifts. You can make food mixes, candles, fresh-baked bread or cookies, soap, and all kinds of other things at home quite easily and inexpensively.
  • Entertain at home. Instead of hitting the town, host a fun pitch-in dinner with your friends. Play cards, sit around a fire pit, or watch movies with your guests. You’ll all save money – and have a blast.
  • Share your dream of owning a home. This seems like an odd way to save money, but think about it. If you spend lots of time with the people you love the most, and share your dream with them, it becomes easy for everyone to work with you toward your goal. 

2. Gift letter – Although you cannot borrow money, it can be gifted to you from a family member. If you are gifted money, the lender will require your donor to sign a gift letter that states the money is a gift and will not need to be repaid. The donor will also need to provide their contact information, the purchased property address, and the amount and source of the gift. Documentation of the withdrawal and transfer of gift funds will be required.

3. 401(k) – There are some situations in which borrowing from your 401(k) may be an option. However, many financial advisors would advise against withdrawing funds from your  401(k) due to penalties. Some 401(k) plans do allow for you to take out funds penalty free if applied to a down payment for your home. Again this is something that you would need to consult your financial advisor about.

4. Tax Return – Are you expecting a tax refund this year?  If so, this may cover your down payment ($1,000 needed for NIFA loans), or it could go a long way in bridging the gap between your savings and the amount needed for your down payment.


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Before & After 1960s bathroom


Occasionally, we receive before and after pictures of home renovations from clients. Below is information from a client who recently purchased a home with the assistance of Omaha Home Equity Group. They took on their bathroom renovation but wanted to keep the nature of the mid-century home. Here is what they told us:

“You may remember the 1960s blue tile in the bathroom? It all seemed in good order when I purchased the house, but looks can be deceiving. As I would clean it, the grout would fall out. After a couple of months attempting to replace the grout with caulk to see me through until I could figure out what to do, I got fed up. I’d noticed some potential moisture in the basement coming from the bathroom area, and it felt to me that the back wall was bowing out, I could push on tiles and there was quite a bit of giving and moisture showing up, and there was a cracked tile”

“Since we really want to keep the nature of the mid-century home, and the blue tile went all around the bathroom, and the toilet, sink, and tub were all blue, I had to figure out how to manage all this without taking down all 4 walls and replacing the tub/sink/toilet. We had been given this shower curtain when we moved in because it matched so well, and from it we developed an idea:”

“We decided that rather than demolish the entire bathroom, I would try to take down the tile carefully, with the hopes of saving enough of them to checkerboard it with a same size but different color tile. We chose lime green in accordance with the shower curtain. And then I started with the cracked tile, removed it, and saw what was behind those walls.”

“Mold, and in that area, the drywall was completely wet, and pasty. The smell was just awful.”

“I couldn’t have been happier at that point that I’d started. We took it down to the studs, and even the studs were moldy so I had to bleach them and wait a few days to allow them to dry out really well.”

“During that time, we spent our days boiling, then scraping the old rubber based adhesive off 1960’s blue tiles, then bleaching them. This took 4 days total, 2 of which were 7 hour days. It was not for the faint of heart. (Not a project I’d recommend unless someone was TRULY committed to their 1960s tile.) We got the new, proper, to code, backer board up and I waterproofed like a woman on a mission. I had no interest whatsoever in encountering a water problem in there again.”

“And then I got started!”

“Here’s all the tile up, with the transition to the blue only tile, but ungrouted:”

“Then grouted and painted the walls:”

“We also switched out the faucets for the tub, the hardware holding the plumbing lines in place had corroded through so we fixed that while we were at it, and put in a new light fixture over the sink. We MAY still add a recessed light over the bathtub, and I might even regrout the floor tile in the future, but we’ll call it good for now. THAT is how you keep the spirit of the 1960s home intact while updating a pretty serious problem.

I cannot imagine that there is ANYONE in the world happier in her home than I am. But this renovation stuff is a little too addicting, kitchen/dining room floor is next, and I am fairly determined to do it myself. It seems I’ve developed a new hobby.”





What are my options for financing a home purchase?


1) Nebraska Investment Finance Authority (NIFA) was created by the Nebraska Legislature in 1983 to provide affordable loan programs for first-time home buyers (certain exceptions apply). NIFA offers competitive interest rates, low or no down payments, closing cost assistance, and government or conventional loans.  Over 84,000 Nebraskans have purchased their home with a NIFA loan.  Check with Omaha Home Equity Group for eligibility and to find a NIFA lender in your area.

2) Federal Housing Administration (FHA) is another financing option.  Home buyers will need a 3.5% down payment as well as upfront Private Mortgage Insurance (PMI) and PMI for the life of the loan.  A home buyer may ask the seller to pay up to 6% of the purchase price towards closing costs.  The maximum loan amount in Nebraska for an FHA loan is $271,050.

3) Veterans Administration (VA) loans provide financing those who have served the United States in the military. Benefits of a VA loan include no down payment, no PMI, and home buyers may ask the seller to pay up to 4% of the purchase price towards closing costs.  The maximum loan amount for a VA loan in Nebraska is $417,000.

4) A conventional loan is another way to finance a home purchase.  With a conventional loan, you will have PMI (Private Mortgage Insurance) as part of your monthly payment if you have less than a 20% down payment.  You do not have to pay upfront PMI.  The higher your down payment the more you can request in seller assistance for costs.

5%-9.99% down payment – the home buyer may ask for up to 3% of the purchase price in closing costs from the seller.

10%-24.99% down payment- the home buyer may ask for up to 6% of the purchase price in closing costs from the seller.

25% down or more down payment – the home buyer may ask for up to 9% of the purchase price in closing costs from the seller.







Preparing to Write an Offer


What about financing?

You must be pre-approved with a lender prior to writing an offer, unless you are paying cash for the home.  If you are borrowing the money for the home purchase, we will need to provide a pre-approval letter; if you are paying cash, we will need to provide proof of funds.  This documentation must accompany any offer we present to a seller.   

What are the costs prior to closing?

Earnest Deposit – this can be a little as $500, but is generally 1% of the purchase price.  You will present a check at the time you write an offer.  It will be deposited and held in escrow by the title company until closing, at which time it will be credited toward your down payment.

Lender Deposit – most lenders will require a deposit of $500 to cover the cost of the appraisal.  This will be credited toward your down payment at closing.

Home Inspection / Radon Test – A full home inspection costs between $300 – $400, depending on the company you choose and the size of the home.  If you request a radon test in conjunction with the full home inspection, it is an additional $100 – $125.  This is paid directly to the inspector at the time of the inspection, which is within one week of acceptance of the contract.  This money is not refundable or credited to you at closing.

Decisions to consider before writing a contract:

  • What do you want to pay for the home?

We can determine fair market value of the home by preparing a market analysis on your behalf.

With this figure in mind, you can determine what your offer should be.

  • What kind of financing do you plan on using, VA, FHA, Conventional?
  • How much do you plan to apply to your down payment?

 (VA = 0%, FHA = 3.5%, CONV + 5%-20%+)

  • Do you want your contract to be contingent on a home inspection? And/or a radon test?
  • Do you plan to ask for the seller to provide a one year Home Warranty?
  • Do you plan on asking the seller to pay your closing costs?
  • How much do you plan to provide for an earnest deposit?
  • Determine what day you would like to close on the home.

 (This is normally about 45 days from the contract date)

You will want to take time to review the Seller’s Property Disclosure prior to writing a contract.

After the contract is written:

  • You will choose the home inspection company and set up the appointment.  We have a list of trusted inspectors.
  • We will accompany you to the inspection walk through to help you determine if you need to ask for repairs to the home.
  • You will contact your insurance agent for homeowners insurance and provide your insurance company information to your lender.
  • We will work with you, and the closing company, to determine closing time.
  • You must deliver all paper documents that the lender requires, as soon as possible.