The current economic crisis has made getting a home loan a lot more difficult. Credit has tightened, and banks are requiring that potential homebuyers put more skin in the game. One of the ways that banks are doing this is by requiring larger down payments from home buyers.
Too many home buyers bought homes with little to no down payments during the home buying boom. Today, banks are asking homeowners to put down 10-20% of the home's buying price. This may come as a surprise to many new home buyers. Don't worry! Here are six ways to come up with your home down payment.

IN PICTURES: 7 Tips On Buying A Home In A Down Market

  1. FHA programs
    The FHA has programs that will benefit state employees who choose careers that fill a void. Teachers, law enforcement officers, firefighters and medical technicians are eligible for discounts on home ownership.

    The Department of Housing and Urban Development offers a Good Neighbor Next Door program that will allow state workers to buy a home for 50% off of the list price. All homeowners need to do is live in the house for three years to be eligible for the discount. The house must be their sole residence. That's a pretty good perk for working in a respectable profession.

  2. State Programs
    The FHA doesn't have the market cornered on assistance programs to new homeowners. States have programs to make home ownership more affordable to lower income and moderate income buyers.

    For example, the state of Georgia has the Georgia Dream House Ownership program which offers assistance to lower income borrowers. States like Ohio offer down payment assistance grants for new graduates, which will fund you 2.5% of the home's purchase price. Many states have similar programs.

  3. Retirement Plans
    One of the few occasions when it acceptable to take a withdrawal from your retirement plan is when you are buying a home. You can use up to $10,000 in funds for your first home purchase from your IRA, penalty free. Taking the money out of your 401(k), on the other hand, is a bit trickier. You can take a hardship withdrawal, but you will pay taxes on the amount that you withdraw and pay a 10% penalty. You can take a loan out from your 401(k) but you will have to repay the loan with interest. (To learn more, see Can My Spouse And I Use Our IRAs To Purchase Our First Home?)

  4. Extra Income
    Taking a part-time job is a great way to save up the money for your home down payment. Or, you could ask to work overtime at your job for a few months until you have enough saved. You could do odd jobs around your neighborhood, such as painting, pet sitting or landscaping. All of these jobs will have you on your way to homeownership in no time.

  5. Gifts
    Gifts are great, because they are a free form of money that you never have to pay back. Now is the time to hit up the Bank of Mom and Dad. Remind them of all the times that you cleaned up your room growing up and helped out around the house. This may put them in the gift giving mood. If not, see if relatives and friends want to contribute to your home buying quest. You just may find that Uncle John and others are more than happy to kick in funds to see your real estate dreams come true.

  6. Loans
    Did you fail to convince Mom and Dad to give you the down payment for free? Another option is to ask them for a loan. Write up a contract and agree to repay the amount of money that they lend you. The best part about borrowing money from your family members is that it's more convenient and they do not have to run your credit. Just make sure to repay the down payment as agreed upon. Who knows? They may even let you borrow the money interest free!

The Bottom Line
As you can tell, there are a number of alternatives that can make your home buying dream a reality. You can get help with getting in your first home by investigating all of the alternatives available to you. Good luck and happy house hunting! (For more, see Are You Ready To Buy A House?)

Catch up on your financial news; read Water Cooler Finance: Billionaire Pledges and Other Positive Press.

Related Articles
  1. Retirement

    5 Secrets You Didn’t Know About Traditional IRAs

    A traditional IRA gives you complete control over your contributions, and offers a nice complement to an employer-provided savings plan.
  2. Retirement

    Using Your IRA to Invest in Property

    Explain how to use an IRA account to buy investment property.
  3. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  4. Home & Auto

    7 Absolute No-Nos When Selling a Home

    Avoid these mistakes if you’re looking to make a quick and easy home sale.
  5. Savings

    How Parents Can Help Adult Children Buy a Home

    Owning a home isn't easy thanks to stringent lending standards. Thankfully, there's ways parents can help their kids buy a home.
  6. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  7. Credit & Loans

    HARP Loan Program: Help for Underwater Mortgages

    If you are underwater on your mortgage, this program may be just what you need to help build up equity in your home.
  8. Credit & Loans

    Pre-Qualified Vs. Pre-Approved - What's The Difference?

    These terms may sound the same, but they mean very different things for homebuyers.
  9. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  10. Retirement

    Is Netflix Stock Suitable for Your IRA or Roth IRA?

    Learn about the risks of Netflix's business plan and long-term corporate strategy, and see if the stock's risk/reward profile warrants inclusion in an IRA.
  1. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  2. Can FHA loans be used for investment property?

    Federal Housing Administration (FHA) loans were created to promote homeownership. These loans have lower down payment requirements ... Read Full Answer >>
  3. Does an FHA loan require a down payment?

    Federal Housing Administration (FHA) loans require down payments, which can be as low as 3.5% of the total purchase price ... Read Full Answer >>
  4. Can a 401(k) be used for a house down payment?

    A 401(k) retirement plan can be tapped to raise a down payment for a house. You can either borrow money or make a withdrawal ... Read Full Answer >>
  5. How old do I have to be to make catch-up contributions?

    Most retirement plans such as 401(k), 403(b), individual retirement accounts (IRAs) and Roth IRAs allow for catch-up contributions ... Read Full Answer >>
  6. Do 401k contributions reduce AGI and/or MAGI?

    Traditional 401(k) contributions effectively reduce both adjusted gross income (AGI) and modified adjusted gross income (MAGI). ... Read Full Answer >>

You May Also Like

Trading Center