What’s the hardest part of the process for anyone preparing to buy a home? According to many in the real estate industry, it’s saving up a down payment. In fact, the National Association of Realtors and RealtyTrac have reported that at the rate Americans generally save, first-time homebuyers have to spend an average of 12.5 years amassing their 20 percent upfront investment. While you can buy a home with less—such as 3.5 percent down through the FHA, for example—you’ll pay a penalty in private mortgage insurance and, often, higher interest rates.
Fortunately, there are ways to save up faster and even find alternative sources of cash. Give these a try and 20 percent down may no longer seem like that large of an obstacle.
1. Find a Down Payment Assistance Program
According to RealtyTrac, 87 percent of U.S. homes qualify for down payment help, and there are more than 2,290 down payment assistance programs across the nation. You can start your search at Down Payment Resource, a website that connects homebuyers with down payment assistance opportunities. Use their online program finder to explore your eligibility. You can also check out your state’s housing authority website for a list of programs and participating lenders. Not all lenders participate in down payment assistance programs.
2. Make Saving for a Down Payment Automatic
Instead of waiting until the end of the month to see what you have left over to save for a down payment, schedule automated contributions to your designated savings account. It’s a lot easier—and less painful—to save when you budget accordingly and pull contributions from your checking account weekly, bimonthly or monthly. You can schedule transfers through your bank or ask your employer about your direct deposit options. Some give you the ability to divide and deposit your paychecks into multiple accounts.
3. Stash Extra Cash
Did you just win $50 on a lottery scratch ticket? Put it in your down payment savings account. Did your employer give you a 5 percent raise this year? Schedule an additional 5 percent of each paycheck for transfer into your down payment savings account. You get the idea; any extra cash that comes your way—from tax refunds and work bonuses to yard sale profits and inheritances—goes into your down payment savings account before you’re tempted to spend it on anything else.
4. Ask Your Family for Help
Most lenders will allow you to use cash gifts from family to cover at least a portion of your down payment. As of 2014, conventional mortgages generally allow you to use gift funds for your entire down payment as long as you’re putting down 20 percent or more of the purchase price. If you’re putting down less than 20 percent, part of the money can be from gifts, but part must come from your own earnings as well. The exact contribution limits vary by loan type. FHA and VA loans allow for gift assistance on the entire down payment provided your credit score is 620 or above.
5. Talk to Your Employer
Some employers offer mortgage assistance programs to their workers. Talk to your human resources department about the options—from down payment assistance to low-interest mortgages—that may be available to you. If you’re in the market for a new job, you might even be able to request down payment assistance as a signing or relocation bonus.
Anything worth doing is worth doing right, and for many, that means buying a home with 20 percent down. Whatever your real estate plans, please don’t hesitate to give us a call for further insight. We look forward to assisting you soon.
