Coming up with a lump sum of money for a down payment can be scary and daunting to many first-time buyers. You definitely don’t want to wipe out your entire savings to purchase a home.

It doesn’t have to be a roadblock to homeownership!

Once you’ve got your monthly budget all set and know approximately how much home you can really afford, the next step is dealing with your down payment.  Here’s some guidance on where you can find cash for your down payment and also a rundown of some great homebuyer assistance programs that can help reduce the amount taken out of your own pocket.

How Much Down?

How much money you need for a down payment can depend on the type of mortgage you will get for your financing.

**If you are a veteran, you can put $0 down! 

**USDA loans require $0 down!

**FHA loans can require as little as 3.5% down.

**Conventional loans may require 3, 5, 10 or 20% down, depending on your credit and other factors affecting your financial picture. Most buyers can qualify with as little as 5% down, so don’t think you need more—you might not!!

However, the amount you put down really depends on YOU.  If you’re a first-time buyer, don’t put all of your savings into your house. You may need some of that cash once you’re a homeowner. 

Instead, put down just enough to buy the house and get a monthly payment that works for your budget right now. Once you narrow down your mortgage options and take into account any homebuyer assistance programs, you’ll have a better idea of how much you’ll actually need for your down payment. Next week you’ll learn more about mortgage options out there so stay tuned for that!

Here’s a rundown of where to find money for your down payment:

Help from Homebuyer Assistance Programs

As a first-time homebuyer, you may qualify for many of the state and local assistance programs available, many of which could help cover some of your down payment. Plus, several lenders also offer grant programs that can help with down payment and closing costs.

If you’re a first-time buyer with a moderate income, you should look into these programs before you consider other options … it’s like free money toward your purchase!  Many assistance programs could be a good match for you and your circumstances. Definitely make it a priority if you’re a state, country or city employee since many local jurisdictions want to make it possible for you to work and live in the same community.

I can give you a complete update of current programs for first-time buyers. Don’t hesitate to contact me.

Should You Tap into Your Retirement Accounts?

You may have a nest egg of cash that you thought was off limits! These options below may not be the best choice for you, but they are something to consider if funds are needed.

Keep in mind, you will need to follow some set rules to access this money, and should always consult with an advisor to clearly understand any tax implications.

• Borrow From Your 401(k) Plan. Check with your employer to see if your 401(k) plan allows for loans.

• Withdraw Funds From Your IRA. If you’re a first-time buyer or someone who hasn’t owned a principal residence for two years prior to signing a binding sales contract. You may be able to withdraw up to $10,000 penalty-free from an IRA for a down payment if you meet the requirements. Iff you and your spouse are both first-time buyers, each of you may pull from your retirement accounts, giving you a total of $20,000 in cash.

• Withdraw Funds From Roth IRA. The rules are a bit different if your nest egg is in a Roth IRA.

*** Please check with your financial advisor, place of employment and lender for all of the above for any fine print of rules and allowances when it comes to withdrawing from these funds.

Reach Out to Friends and Family

You might be reluctant to ask your family, but they can be a great source for your down payment. You will need to decide if this is a gift or a loan. Your parents might have done the same thing when they bought their first house!

• Gift from Family. Immediate family will often help with home purchases. Gifts up to $14,000 per year per person can be given without worrying about the gift tax. This means, for example, that every year your mother and father can give you and your spouse a total of $56,000 without having to file a gift tax return. Documentation is required so you need a letter stating that the money is indeed a gift with no expectation of repayment.
• Borrow from Family or Friends. You may prefer to ask for a loan rather than a gift from a loved one. However, your lender needs to know if you are borrowing from family or friends since they will consider this an additional debt for you. The lender will factor this additional debt into its own decision on whether to loan you money.

Boost Your Savings

This is one area where you have some control over and should start making an effort as soon as you even begin thinking about buying a home. The earlier you start, the more you can increase your personal savings.

• Tax Refund. Consider changing your withholding exemptions from 1 to zero. Your paycheck will be reduced but you’ll get a bigger check at tax time to use toward your down payment. That way you won’t use the money up during the year and will have a big chunk at the end.
• Deposit $$ in Bank Regularly. You’ve probably heard this before, but it does work: Get into the habit of putting the same amount of money into your savings after every paycheck. If you get paid every two weeks and save $200 from every paycheck, you will have saved more than $5,200 after 12 months. Not bad!
• Sell Stuff on eBay or Craig’s List. Everyone has unwanted items that take up space. Consider selling these items and put that money toward your down payment.

Do you still need to make sense of all the mortgage options out there? It’s definitely not “one-size-fits-all” these days! Let’s discuss your specific financial situation and what’s possible for you.  This is the part at stops most buyers who can afford a home, simply because they don’t have all the information they need to make the right decision. 

If thinking you don’t have enough to put down is stopping you, email me and let’s schedule a time to talk more and see!  I can help give you an honest assessment of whether you can move forward or if you it would be best to wait a few months or years. 

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