Most Americans want to own a home, but the hefty down payment required to purchase a home makes owning property a pipe dream for many. After all, unless you want to pay private mortgage insurance, most lenders require a 20% down payment on the home loan. Unless you have a lot of money saved or wealthy benefactors, coming up with 20% on a $250,000 or $300,000 house is going to be hard to do. Thankfully would-be homeowners have more options than giving up on the dream of homeownership. From getting a part-time job to selling belongings, there are a lot of not so common ways to come up with the down payment.
One of the byproducts of the real estate meltdown of a few years ago is more stringent requirements to get a mortgage. Long gone are the days of 100% financed mortgages and zero document loans. These days banks and lenders are going to require a lot of paperwork, a debt to income ratio of no more than about 43% and 20% down. Some lenders will accept a lower down payment, but usually, borrowers pay for it in the interest rate. Borrowers who come to the table with less than 20% typically face private mortgage insurance (PMI) that can increase the mortgage payment by $100 or more each month. Because of the extra cost borrowers should do everything they can to come up with the down payment and one option is to get a part-time job to supplement their income. By getting a second job and putting all the money into a savings vehicle to be used only for the down payment not only will they be able to increase their nest egg but they’ll be too busy working to spend extra money.
Most people who don’t have enough for the down payments accept private mortgage insurance as a necessary evil without first seeing if they are eligible for the many assistance programs that are available. For instance, veterans and active duty military can qualify for VA loans given by the U.S. Department of Veterans Affairs. These mortgages require zero down and typically have a good interest rate attached to them. States also offer consumers down payment assistance through a variety of programs. A lot of the programs are geared toward first-time home buyers who meet certain credit, income, and home price requirements but some are geared toward getting people to purchase homes in a particular neighborhood or region.
People ready to take the step into homeownership typically have a lot of stuff they’ve acquired along the way. Those things may seem worthless to the owner, but one person’s garbage is another’s treasure, which is why selling used goods is a way to raise much-needed cash for the down payment. The Internet makes it easy to sell everything from clothes to electronics both locally and around the world. Some of the sites let you do it for free while others take a cut of your profit but if those designer jeans have been hanging in your closet for over a year and could get you $100 through a quick sale that’s $100 less you’ll need for your down payment.
If you want to free up cash to save for a home but you don’t have the time for a part-time job, then downsizing your lifestyle for a while could go a long way in saving money. If homeownership is something you want soon, then drastic downsizing like selling your car and taking public transportation or trading a two bedroom apartment for a studio apartment can achieve that. If it’s more of a long-term desire then cutting back on dining out or buying a coffee can add up and steadily increase the amount you save.
Asking family or friends for money may not seem like the ideal option, but if you have a favorite aunt, grandparent or cousin that has a lot of cash, it could be a win-win for both of you. If they gift you some or all of your down payment, they will not only be doing a good deed, but they can get a tax write-off from it. The Internal Revenue Service lets people give gifts of several thousands of dollars a year and not pay taxes on it. The recipient gets the gift tax-free as well. That tax break is also open to friends so if you can’t find a family member willing to help out there could be a wealthy friend ready to do so. If a gift is out of the question, ask to borrow the money and come up with a repayment schedule that also includes interest. That way the person borrowing money doesn’t lose out on the loan if it takes you a few years to pay it back.
Homeownership is the dream for many, but the down payment prevents that from happening way more than it should. While coming up with thousands of dollars may seem impossible to do it isn’t. There are a lot of non-traditional ways to raise cash for your down payment whether that means getting a part-time job or swallowing your pride and asking for help if you are willing to think outside of the box.