The down payment: It’s the biggest test of our ability to save money that most of us will ever face, and one that stands between us and our ability to become a homeowner.
It can be tricky to stockpile enough money for a down payment, but it’s also an opportunity. The more money you put down, the more choice you’ll have about how much house you can afford and what you want the monthly payment to be. Plus, building up a cash cushion will definitely give you peace of mind once you’re in your new home.
Here’s How to Boost Your Down Payment Savings
1. Go local.
Gone are the times when nationwide programs allowed for the zero-down loan, the federal homebuyer tax credit, and the use of tax credit funds toward down payment and closing cost requirements.
Where have all the down payment assistance programs gone? Local.
The best programs of this sort are now largely operated by local governments—primarily cities and counties—and the rules for qualifying vary. Some are exclusively for buyers with low or moderate incomes; others are dedicated to helping first-time homebuyers. Many of these programs have a limited pool of funds that may run out over the course of the fiscal or calendar year, and almost all of them require buyers to jump through some hoops, such as completing homeowner education classes or choosing a home that meets specified criteria.
To find these programs, look for links for homebuyer assistance on your city, county, and state websites. Only trust websites that end in .gov—scammers posing as governmental agencies abound. Local real estate agents and mortgage brokers often know the ins and outs of these programs too.
2. Hit up your relatives.
Most mortgage programs will allow for some portion of your down payment to come in the form of “gift money,”which is exactly what it sounds like: money someone gives you to help you buy a home.
While gift money may sound great, be aware that taking gift money from a relative can create relationship issues or come with emotional strings attached. Plus, lenders frequently require that gift money be accompanied by a letter that clearly states the money is a gift, not a loan. The lender may also want to see a bank account statement from the giver, proving that the money was theirs to give.
3. Ask your employer.
Universities and municipal departments that employ first responders such as police and firefighters frequently make down payment and other home-buying assistance programs available to staffers. Large employers or even smaller companies seeking to lure top-level recruits do something similar: relocation assistance programs.
Check in with human resources to explore whether any such assistance is available—and if you happen to find yourself a hot prospect on the job market, consider trying to negotiate relocation or down payment assistance into your offer package.
4. Tighten your budget.
Get gut-level real with yourself about what’s truly important to you. If the answer is buying a home, then it’s time to examine your spending and look for leakage that you can redirect to your down payment savings.
If you spend $20 a workday on a morning coffee and bagel and a takeout lunch, that’s at least $400 per month—almost $5,000 a year you could be saving. And those numbers are not inflated to reflect big-city prices. Nor is the $100-a-month cable bill, the $15 yoga class, or the $2,000 vacation.
Instead, brown-bag your lunch, stream TV shows and movies from one online source, and rally your friends to do a workout class together from that streaming site. Cut hotel costs by renting a private room or small apartment on a site such as VRBO or Airbnb.
The key is to shift out of spending autopilot and to transfer the saved money into a separate savings account that’s earmarked for your down payment.
5. Borrow from yourself.
There are situations in which it may make sense to borrow a few thousand dollars from your 401(k) or IRA.
Some retirement accounts allow you to borrow against or pull out funds, penalty-free, to apply them toward your down payment on a home. Is it advisable for everyone, in every situation, to deplete their 401(k) or IRA to plug that cash into a house? Absolutely not.
But if getting your down payment to the 20% mark by borrowing from your 401(k) gets your mortgage interest rate down and allows you to repay that cash to your own retirement account (versus to your mortgage lender) with interest, you and your financial adviser might agree that this move is right for you.