Saving for Your Down Payment
You’ve decided to buy a home! Now it’s time to save up.
Buying a home is the single most expensive purchase most people will ever make. As you’re dreaming about your new home, you’re likely saving for the down payment. It actually may not be as difficult as you think. There are many programs and resources available to help home buyers with their down payments.
Low down payment options
Typically, your down payment is calculated as a percentage of the home price. The amount of money you can afford to put down will affect the other terms of your loan. Specific loan types have different minimum closing cost requirements. For example, for those who qualify, VA and USDA loans do not require a down payment at all. FHA loans start at 3.5%. Conventional loans range from 5% to 20%. When putting down less than 20%, many lenders will require monthly insurance payments.
Make use of available assistance programs
Many non-profit community groups as well as federal and state agencies offer down payment assistance programs, particularly for first-time homebuyers. Research your options and ask your lender for suggestions as well.
Receive a gift
Who doesn’t love a gift? Especially when it’s in the form of cash for your new home! Homebuyers can use money provided as a gift as part or all of their down payment. Gifts can come from family members or their fiancé / significant other. Non-relatives may also be able to provide a gift for this purpose, but the rules tend to be more restrictive. Check the loan type for specific rules around using gifts for down payments.
FHA Bridal Registry
These days, many couples are living together before getting married. They have dishes, towels, all the comforts of home already. They may be ready for the next step—homeownership. Couples can create this savings account with the FHA and family and friends can make deposits toward their down payment on their home. This federal program was set up for newlyweds looking to purchase their first home, but it really extends to any occasion where people typically give significant gifts.
Borrow money from retirement plans
First-time homebuyers are allowed by the IRS to use up to $10,000 of their IRA funds as a down payment. Those with a 401(k) savings plan may be able to borrow against it, but you’ll need to repay it.
Sell some personal property
Do you still have that motorcycle collecting dust? Maybe you have an old collection of stamps that you’d like to cash in. Consider selling items to make a few bucks.
There are many ways to come up with your down payment. Get creative! Do your research and ask questions. Sometimes the money is out there for you to find—you just have to look for it.