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10 Ways To Get That Down Payment
Buying a house has always been a dream. And with rising rents across the country, you know you might even save a few bucks every month as a homeowner. Not to mention the tax write off and the long-term equity. If it weren't for that whole down payment thing, you'd be having a housewarming party right now.
If you're a first-time homebuyer or have not purchased a home in the last two years, an FHA loan may be your best bet because you only need to come up with 3.5 percent down. On a $250,000 house, that's $8,750. Seem impossible? Here are 10 ways to come up with the cash.
1. Side work
Now don't give the idea of side work the side eye. We don't mean anything untoward here. The reality is you can take on some extra work in your field or make money by monetizing a hobby.
"No matter how mundane or insignificant your talents seem, there are other people out there who don't have those talents — and they might be willing to pay you for your skills," said Forbes. "If you're good at making things, look into selling your wares on Etsy. Woodworking, knitting, sewing, and graphic design are all in demand. Check out Taskrabbit, a site that hires you out to do household chores and errands for people in your community. Things like assembling IKEA furniture, shopping, pet sitting, and more can yield a surprising amount of money to add to your down payment fund."
2. State down payment assistance programs
States like Colorado and California offer programs for down payment assistance that are typically tied to income limits. California's CalHFA agency offers CHDAP, "a deferred-payment junior loan -- up to 3% of the purchase price, or appraised value, whichever is less" for down payment and/or closing costs.
Colorado's CHFA program is a grant of up to three percent of "up to 3 percent of your first mortgage loan to help cover some of your down payment and/or closing costs."
The U.S. Department of Housing and Urban Development's (HUD) website has a state-by-state list of programs.
3. County and city down payment assistance programs
"At least one down payment program is available in all 3,143 U.S. counties, and more than 2,000 counties have more than 10 down payment programs available to prospective homebuyers," said HousingWire. For the report, RealtyTrac looked at 2,290 down payment programs from Down Payment Resource's Homeownership Program Index and found out of more than 78 million U.S. single family homes and condos, more than 68 million would qualify for a program. That equates to an average of $11,565.
You can get more information and check eligibility here.
Individual cities may also have programs. For example, the city of Austin, TX offers down payment assistance for qualified applicants in the form of a 0 percent deferred loan.
Hope you're in good graces with your family, because they might just give you the funds you need to buy your home. "Parents can give up to $13,000 annually to their children without having to pay gift taxes," said Money Crashers. A family member or friend can also give you a loan, but you'll have to "draw up specific repayment terms" to avoid tax issues. And, there are documentation requirements and lender specifics with either option.
"If a parent, grandma or whoever gives you the money, you need to fill out a gift letter, validate it with a copy of the check and your deposit receipt into your bank account," said My Mortgage Insider.
5. USDA Mortgages
Getting down payment assistance from an agency that exists to support and promote rural areas might not sound relevant if you're looking to buy in the ‘burbs, but the USDA offers a zero-down loan known as a Section 502 mortgage that is "not just a ‘rural loan' — it's available to buyers in suburban neighborhoods, too," said The Mortgage Reports. "The USDA's goal is to reach ‘low-to-moderate income homebuyers,' wherever they may be. College towns including Christiansburg, Virginia; State College, Pennsylvania; and even suburbs of Columbus, Ohio meet USDA eligibility standards. So do the less-populated suburbs of some major U.S. cities."
6. Friends and loved ones
If you have a birthday, anniversary, or other special occasion coming up, forgo the expensive dinner out, the birthday cake, and the new socks you don't need. Register instead on Down Payment Dreams, and create a place where people can help you get the funds together.
7. Your IRA
Money you've already put away could be the answer to your down payment conundrum. "Tax laws allow you to use up to $10,000 in IRA funds as a down payment if you've never owned a house," said Bankrate. "If you're married and you both are first-time buyers, you each can pull from your retirement accounts, meaning a potential $20,000 down payment."
There is no penalty for early withdrawal, they added, "but you may owe tax on the money depending on the type of IRA," so ask your tax advisor before pulling the trigger.
8. Your 401(k)
If you have a 401(k), you can tap it to pull out funds for a down payment. But, you'll need to pay them back. The 401(k) loan "typically allows a person to borrow up to 50 percent of his or her account balance up to a maximum of $50,000 but requires it be repaid within five years—though the repayment schedule may be extended if you're using the money for a down payment on a home," said Forbes. "The loan doesn't have to be approved by a bank, which means you can usually get your hands on the money quickly and without a credit check. Plus, interest rates may be lower than on standard bank loans."
9. VA loans
Are you a veteran or currently serving the country? If so, you may be able to get a zero down payment loan from theU.S. Department of Veteran Affairs (VA). The VA offers a "basic entitlement" to "each eligible veteran" of $36,000. "Lenders will generally loan up to 4 times a Veteran's available entitlement without a down payment, provided the Veteran is income and credit qualified and the property appraises for the asking price," said the VA.
10. Good ‘ole savings
You may have been trying to save enough money to buy a house for years. But some smart strategies and strict cutbacks can make a real difference. Trade your cable for Netflix. Take your lunch instead of buying. Trade your gas-guzzler for a hybrid. You'll be surprised how much money you can save. Click here to see how more about how two different people saved $30,000 in a matter of months.
Still not where you need to be? Check out Movoto for some more creative ideas for saving money toward your down payment.
I am an experienced Realtor working in the Greater Hudson Valley Region which includes both Rockland and Orange County. My goal is to make my client's real estate experience a happy one. Because succe....