Dear Home Buyer, 13 Ways To Pull Together Money For Your Down Payment

You’ve found a house you love, and mortgage rates are still fairly low. But where do you find a huge wad of cash for the down payment?  

 

It could take a while to save up 20 percent for a down payment , but of course, you can buy a home with less than 20 percent down. The Federal Housing Administration has lowered down-payment requirements for mortgages it insures to as low as 3.5 percent to make it easier for buyers to get into the market. Both Fannie Mae and Freddie Mac have conventional loan options with down payment requirements for mortgages they insure as low as 3.0 percent.

 

That doesn’t mean it’s impossible to save for a down payment. It just requires time and fiscal discipline. If you can follow some or all of the following tips and strategies, I’m confident you’ll realize your dream of homeownership faster than you thought possible – even if it means scrimping in the short term.

 

1. Take Advantage Of Down-Payment Assistance Program

Relatively few prospective homeowners realize that they could qualify for national down payment assistance programs that can reduce their out-of-pocket down payment costs by thousands of dollars.

 

You might be surprised how many programs exist to help buyers — many  programs DO NOT require you to be first-time home buyers. Look for programs near you by typing “down-payment assistance programs” and your city’s name into a search engine. Income requirements typically apply, but limits for some programs in major cities can be over $100K,  check to learn if you are eligible.

 

2. Set Up A Dedicated Account

Get going by setting up a savings account that pays the most interest possible. Set up an account solely for the down payment.

 

3. Put Savings On Auto Pilot

Saving is painless and virtually unnoticeable when you establish an automatic withdrawal that pulls money monthly, twice monthly or weekly from your checking account.

 

4. Dedicate Windfalls To Your Goal

 

Put every tax refund, gift of cash, purchase refund and work bonus into your down-payment account.

 

5. Take A 401k Loan

You can also borrow from employer-sponsored 401ks to fund your down payment. On 401k loans, borrowing limits are much more generous: You can borrow up to the lesser of $50,000 or half the value of the account. That’s enough to fund a 20% down payment on a $250,000 house, or a 10% down payment on a $500,000 house.

As a general rule of thumb, 401k loans are useful in two situations: for funding small down payments ($5,000 or less) in their entirety or as the last piece of a multi-year, multi-source down payment funding strategy.

 

6. Stash Away Your Raise

 

When you earn a raise at work, carry on as if it never happened. Have the difference between your old and new paychecks funneled automatically into your down-payment savings.

 

7. Sell Taxable Investments

 

Sell taxable investments to raise money for your down payment. Taxable investments include stocks, bonds, mutual funds and other investments in taxable accounts.

 

8. Tap your IRA

Tax laws allow you to withdraw up to $10,000 in IRA funds to buy your first home. If you’re married and you’re both first-time buyers, you each can pull from your retirement accounts, meaning a potential $20,000 down payment.

 

Even better is the IRS definition of first-time homebuyer. Technically, you don’t have to be purchasing your very first home. You qualify under the tax rules as long as you (or your spouse) did not own a principal residence at any time during the three years prior to the purchase of the new home. In these instances, Uncle Sam waives the penalty for early withdrawal, but you may owe tax on the money depending on the type of IRA.

 

9. Get A Loan From Your Life Insurance

 

Unlike term life insurance, which pays out only if you die during the policy term, permanent life insurance policies — sometimes called whole or  cash value life insurance — pay out no matter when you die. Part of your premium goes into a separate account that builds up cash value.

When there’s enough cash value, you can use it to:

• Buy more coverage to boost the death benefit
• Pay premiums
• Withdraw cash. (If you don’t repay the money, the death benefit is reduced.)
• Borrow money from the life insurance company. The cash value is used as collateral.

10. Get A Side Hustle

If your take-home pay won’t get you to your down payment goal in your desired timeframe, or you’re worried about negatively impacting your lifestyle as you scrimp and save for your dream home, consider increasing your income by picking up a side hustle – either by taking on a second part-time job, picking up work as an independent contractor, or exploring the many ways to make money from home.

At-home and on-the-side money-making opportunities are virtually limitless. Your chosen pursuits should depend on your unique skills and the assets or amenities you have at your disposal. Some common ideas for monetizing your time, talents, and physical assets include:

• Freelance writing and editing

• Freelance web development and design

• Selling disused possessions on Craigslist, eBay, Amazon, Facebook or a garage sale

• Driving for a ridesharing app such as Uber or Lyft

• Teaching classes through online portals such as Udemy

• Selling crafts on Etsy or at a flea market

• Working as a virtual assistant, remote customer service representative, or tech support professional

11. Look For Lost Money

There are about $23.8 billion worth of matured savings bonds that remain unredeemed, according to the U.S. Department of the Treasury. These bonds have been ignored or forgotten by their owners and aren’t earning a penny of interest. Make sure your bonds and other investments are still adding to your net worth.

You could also have money languishing in an old bank account. You can file a claim with the Treasury to recover lost, stolen or destroyed savings bonds. Or, check the National Association of Unclaimed Property Administrators to see if you have any missing money.

 

12. Round Up and Save Your Change

The advent of online banking makes it easier than ever to save small amounts of money without even realizing it. Some major banks, including Bank of America (Keep the Change) and U.S. Bank (S.T.A.R.T.), empower deposit account holders to save their spare change from every transaction using apps that automatically round debit card payments up to the nearest whole dollar and sock away the remainder in a savings account.

There are also independent apps like Acorns that allow you to save and invest using your spare change.

For instance, when you spend $3.69 on your morning latte, your debit card is charged $4, and the remaining $0.31 drops into your savings account. Multiply that by 50 or 100 transactions per month and you’ve got yourself a nice side pot.

 

13. Get a Financial Gift

Tax law allows gifts of several thousand dollars a year to be bestowed without tax consequences to either the giver or recipient. The gift-exclusion amount is $14,000 for 2017 and is adjusted annually for inflation. The gift exclusion isn’t limited to relatives. The monetary present can be from anyone.