When it comes to buying a house, one of the biggest challenges you may face is sourcing your down payment. Unless you qualify for a loan program that offers a no down payment option, you might be required to put a percentage of the purchase price down to close on your new home. This is likely one of the largest cash transactions you will make, and you may be unsure of how you will pull it off. Fortunately, there are some unique ways to make it work that you probably haven’t considered.
Gift Funds
If you happen to have an extra generous family, they may offer to provide you with gift money to put toward your down payment. Most mortgage programs allow this type of “gift” but the amount allowed and who is considered an acceptable donor varies, so it is important to work closely with your mortgage lender when going this route.
Your Budget
The options listed about require a bit of legwork in order to get the down payment assistance you need. However, there is another option that you may not have considered, seeking out additional income within your budget. No, it doesn’t mean you need to go get a second job, simply taking a fine-tooth comb to your monthly expenses and determining where you can make cuts will add up quickly.
You can also start planning your budgeting better. There are many budgeting “rules” and tips you can take advantage of. For example, the 50/20/30 budget rule that helps you plan on saving 20% for a down payment and other possible expenses, 50% going to recurring debts like your rent, car payments, etc., and 30% to enjoy living a little.
Another savings budgeting rule is the Save While Spending rule, where for every dollar you spend on going out for dinner, or the movies, you match the same amount in your savings.
Local Programs
Through federal down payment assistance programs are few and far between, many local governments now offer funding programs to help homebuyers achieve the dream of homeownership. Primarily geared toward first-time homeowners or those with low moderate incomes, these programs come with certain requirements like attending homeowner education classes or buying a home that meets specific criteria.
Since these government programs have limited annual funds, the earlier you’re able to tap into the resource, the better your odds of getting financial assistance.
Retirement Assets
This may not be the ideal option, but in some cases, lending money from your retirement savings can be beneficial when you need to come up with a down payment. For example, if borrowing from your 401K means you can put a full 20% down payment on a conventional home loan – thus, lowings your monthly payment and foregoing private mortgage insurance – you can use the extra savings each month to repay the cash to your retirement account.
