Don’t get risky when saving for a down payment

What steps are home buyers taking to gather enough money for a down payment and closing costs? Many are patiently saving. Others, though, are relying on everything from gifts from family members to their retirement accounts to get this money.

REALTOR(R) Magazine recently ran a feature highlighting a survey from Bankrate.com. According to the survey, about 47 percent of first-time home buyers said they saved the money they needed to buy a home on their own. But others turned to other help, with 21 percent saying they relied on first-time home buyer grants or loan assistance programs. An additional 21 percent said they relied on financial gifts from family members or friends.

Others took riskier routes, with 8.8 percent telling Bankrate.com that they tapped their retirement accounts to get enough money to buy a home. A total of 7.4 percent of respondents said they found an extra source of income to raise enough money for a down payment and closing costs while 6.3 percent took out loans with family members or friends. An even smaller percentage — 5.7 percent — said they moved in with family members or friends as a way to cut down on their expenses. Finally, 4.9 percent said they sold items such as jewelry or cars to raise the money they needed.

My advice? Don’t dip into your retirement savings to buy a home. There are plenty of low-down-payment options out there for buyers who are worried that they don’t have enough cash to cover a down payment. For instance, if your FICO credit score is 580 or higher, you can qualify for an FHA loan with a down payment of just 3.5 percent of your home’s purchase price. Fannie Mae and Freddie Mac also offers loan programs that require down payments of just 3 percent.

The point is, you don’t have to take risky steps to get into a home. Work with a REALTOR® to find a home that’s in your budget. And then do your research to find a mortgage program that doesn’t require a large down payment. That’s the better option than plundering your retirement dollars.