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Buying a house is an exciting milestone, but saving up enough money for the down payment can often feel like an impossible task. Whether you’re a first-time homebuyer or looking to upgrade to your dream home, coming up with a 20% down payment (which can be $40,000 or more) is no easy feat.
The good news is that there are creative ways to get your down payment together more quickly. Here are 7 smart strategies to help you get the cash you need to make your homeownership dreams a reality:
1. Lower Your Down Payment
You don’t necessarily need to put down the traditional 20% for a conventional loan. Many lenders offer programs that allow down payments as low as 3%. For example, an FHA loan only requires a 3.5% down payment. Putting down less upfront will lead to higher monthly payments and mortgage insurance costs, but it makes the homebuying goal much more achievable, especially for first-time buyers.
2. Use Retirement Savings
Withdrawing funds from a 401(k) or IRA is sometimes an option for coming up with down payment money fast. You can borrow up to 50% of your 401(k) balance (up to $50,000) and avoid penalties and taxes as long as you repay the loan on time. With an IRA, you can withdraw up to $10,000 for a first-time home purchase without the early withdrawal penalty, though you’ll still owe income taxes. While dipping into retirement savings isn’t ideal, it can be a helpful shortcut to buying sooner.
3. Ask for Gift Money
If you have generous family or friends who want to see you in your own home, ask them to contribute to your down payment as a gift. Lenders will require a gift letter stating that the money doesn’t need to be repaid. Gift funds can make a huge dent in your down payment requirements.
4. Take Out a Personal Loan
Personal loans allow you to borrow a lump sum and pay it back over time with fixed payments. Interest rates are higher than mortgages, but you’ll have the cash for your down payment in hand quickly. Just be cautious of high origination fees. Comparison shop to find the best rates.
5. Cash Out Investments
Cashing out stocks, bonds, or CDs can give you quick access to down payment funds You may have to pay taxes and/or early withdrawal penalties depending on the type of investment Be strategic and only liquidate assets you won’t need long-term so you don’t sabotage other financial goals.
6. Get Down Payment Assistance
Many government and nonprofit programs exist to help buyers with down payment and closing costs through grants forgivable loans or deferred payment loans. These programs have income limits, credit requirements, and other eligibility criteria. Connect with your state housing finance agency or local housing authority to find options.
7. Reduce Spending
Trimming your budget in the months leading up to buying can help you allocate more money to your down payment savings. Cut back on discretionary purchases, dine out less, downgrade vehicles, subscriptions, or phone plans, or take on a side gig to generate extra cash. Small spending changes add up over time.
The key is having a solid plan and timeline for building your down payment. Set a monthly savings goal and stick to it. Automate transfers to keep the cash flowing into your down payment account. If you need the money quicker, incorporate some of the strategies above to fast-track the process. With determination and creative thinking, you can make your first down payment, or move up to your next home, faster than you thought possible. Don’t let the down payment be the obstacle keeping you from achieving your homeownership dreams.
How much do you need for a down payment?
Most mortgages come with minimum down payment requirements that are far lower than the oft-heard 20 percent. Here’s how the different loan types compare:
Automate your savings
With this approach, you’ll set up automated deposits of a portion of your income into an account for your down payment. For employees with a directly-deposited regular paycheck, you can have your employer transfer a percentage of your paycheck to your down payment account on payday. For freelancers, contractors or business owners, you can schedule a regular, automatic transfer to your down payment account.
What’s the Best Way to Save for a Mortgage Downpayment?
FAQ
How can I make a downpayment on a house fast?
- Traditional Savings. …
- 401(k) Loans or Withdrawals. …
- Gifts from Family or Friends. …
- Income Tax Refunds. …
- Grant Programs and Assistance. …
- Refinancing an Auto Loan. …
- Lender-Paid and Seller-Paid Costs. …
- Other Creative Strategies.
Can you borrow a down payment for a house?
How to quickly come up with a down payment?
- Build your budget around saving. …
- Automate your savings. …
- Use your refunds and bonuses. …
- Open a First Home Savings Account (FHSA) …
- Use your Registered Retirement Savings Plan (RRSP) …
- Open a Tax-Free Savings Account (TFSA)
What is a 20 down payment on a $300 000 house?