Saving for the down payment on a home requires discipline and dedication, a process that can sometimes be very intimidating for aspiring homeowners. Perhaps this is in part due to the common misbelief that one must come up with a hefty 20% of the purchase price, which is simply not true. In most cases the minimum down payment required is as low as 3.5% to be approved for the loan. On a $300,000 home, this adds up to about $10,500.
As you are working to save for your new home, you may begin to feel as if you have been saving up forever but not making any headway. In that case, we have a couple of ideas that might help you find down payment money more quickly and pick up the speed down your path to homeownership.
Did you know you don’t have to wait for retirement to use your 401K funds? You can! You can borrow a portion of the funds from your 401K to use toward a down payment on a primary residence penalty-free. You will have to pay the money back to yourself with interest, but it is a great way to get yourself into a home now with money you have already saved up. Give your 401K servicer to see how much money you are allowed to withdraw and to get a better understanding of how the process works.
Your City or State
Another way you may be able to get down payment money is through city or state programs. These can either be attached to a city’s neighborhood development program or through down payment assistance programs offered based on your loan type. In most cases, this is not “free” money. You will have to repay it, usually in the form of a higher interest rate. There are income and credit score requirements that you will have to meet. However, these programs may help you get into a home of your own more quickly than saving up a little bit of money at a time. You can see the entire list of down payment assistance programs and grants offered through the FHA by clicking here.
Help From Friends and Family
If you have generous friends and family, you can work out a deal with them to get your down payment covered. Depending on the type of loan you get, you should be allowed to have the down payment come from someone else in the form of a gift. The generous donor will have to write a letter explaining that the money they have given you is a gift and not a regular payment.
Your Current Home
If you already own a home, you can use the equity from it to buy another home. Since home values have appreciated significantly in recent years, you may be surprised to learn just how much equity you have in your home.
This is an excellent option if you’re planning to purchase an investment home or even if you plan to buy a new home and turn your current home into a rental. You can access your equity by working with your lender to get a home equity line of credit, or a cash-out refinance. Each of these options is essentially a loan on your equity, and you will have to pay it back plus interest. However, with interest rates being as low as they are, this is still a great option.
Whatever you are doing to save money for a down payment on a home of your own, keep going. It is hard work, but the payoff will be tremendous. You will get there eventually, and hopefully, some of these ideas will help make the process a bit easier.