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
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: