Savvy Buyer's include Roth IRA in Down Payment Savings Plan

In a tight buyer's market like we have experienced this year - larger down

payments offer multiple benefits for eager home shoppers.  
 

These benefits include:  stronger offers in multi-bid

scenarios, lower interest rates and lander fees, and potentially more

negotiating power.   One key down payment source for home buyers (as well as parents or

grandparents wishing to make a gift) is funds saved in a Roth IRA.  
 

"Unfortunately, buyers with less than 20% down payments are often unable to successfully purchase in today's market because of strict lending rules related to condos or because sellers prefer the safety of buyer's with higher down payments, says RE/MAX Broker/Realtor, Karen Gately Herrick.

"Buyer's with larger down payments are more likely gain financing approval and get the seller to closing as they are less subject to the variations in appraisals,"  Herrick explains.
 

Home buyers who plan in advance may find that a Roth IRA is a great place

to deposit funds earmarked for a downpayment vs. a traditional savings or

checking account because of the potential for greater returns and tax free earnings.  
 

Parents who have always planned on contributing to their child's down payment

may consider whether it is more advantageous to access Roth IRA funds vs other funds.
 

Here's how it works:
 

•You may withdraw your contributions (i.e. the after-tax principal

deposits) to a Roth IRA penalty-free at any time for any reason. 
 

•You may also be able to withdraw some earnings penalty-free as

long as it is for a first time home purchase
 

•Money that was converted into a Roth IRA can also be used for a home purchase

penalty-free as long as the money was converted 5 years ago. 
 

What is a "first time home buyer?"   Anyone who has not owned a home for two

years.  
 

For some, the Roth IRA may provide home buyers a great deal of flexibility

with how they may use their Roth IRA savings.  Kim Feeney Zollo, a certified

financial planner practitioner, adds “using the qualified withdrawal feature

from a Roth IRA or a Traditional IRA can be a meaningful source of funds to

help with a down payment for first time home buyers as long as retirement

objectives are not jeopardized.”  
 

As always in important financial decisions, be sure to consult with a financial

advisor or their accountant to ensure they follow the IRS rules:

http://www.irs.gov/publications/p590/ch01.html#en_US_2012_publink1000230896

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