Tips To Come Up With a Down Payment For a House

You want a home? How do you get the down payment for a house?

Let’s start with the basics – What is a down payment? It is the money a buyer is bringing to the table to purchase a home, along with a loan. The standard down payment is between 5 and 20 percent althought there are loans that require as little as 3 percent down. According to KCM, 40% of buyers are putting down less than 10%. A recent study done by Ipsos found that new buyers have two major misconceptions about down payments and loans:

People overestimate the amount of down payment they will need to purchase a house. According to the study, 36% think a 20% down payment is always required.

Ways to get the downpayment for a house

from KCM

The Ipsos survey reported that two thirds of those who responded believed they needed a very good credit score in order to qualify for a loan. Forty-five percent thought a “good credit score” is over 780.

A good credit score is essential to getting a home loan

KCM - Ellie Mae Report

The bottom line is, you still have to have a down payment. The problem remains, how can you save or get enough money to cover the down payment for the house you want?

Here are 5 ways to save for a down payment:

  1. Just plain save (Start today!):
    • Have money automatically taken out of your account weekly and added to savings.
    • Stop going out to lunch (Starbucks) except for Friday and add that to your savings.
    • If you are a couple, instead of giving gifts at holidays take that money and add it to your savings.
    • When you get a raise, add it to savings.
    • Add any unexpected money - tax refund, gifts, etc. to savings.
  2. Ask family or friends for a gift. The tax law allows gifts of $12,000 per year (the amount changes to reflect inflation). These gifts can be given and received without any tax ramifications.
  3. Retirement Funds:
    • If you work for a company that offers a 401(k) retirement plan, you can borrow from it to fund a down payment. You will have to pay back this money and there will be costs associated with the loan.
    • If you have an IRA, you can use up to $10,000 as a down payment for a house but only if you don’t currently own a home or haven’t owned one in the last two years. Also, if you are married and both first time buyers, that means $20,000 is available to you. This amount does not have to be paid back.
  4. Use a down payment assistance program from local nonprofits, community groups and state agencies.
  5. Sell Stuff – Have you heard the story about the couple who were trying to figure out how to save for a house? The wife suggests it might be time for the husband to sell the “sports car” or “motorcycle” to help with the down payment? Items like this can be a good start but don’t stop there, you would be amazed how well you can do on eBay.

There are many ways of getting a down payment for your home. Too many people want to wait for the perfect time or don’t want to make the sacrifice. Be creative, start now and before you know it you’ll be a happy homeowner.

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