Looking to buy a home in the near future? If you don't have massive savings lying around just waiting to be used on a down payment, the home-buying process can be a huge challenge. The good news is, you've got options—between special low down payment mortgages and down payment assistance programs (and other resources, if necessary) you can make your home ownership dreams a reality, even without a huge sum saved up.
Look into lower down payment mortgages
There are mortgage loans that already come with low (or no) down payments, but generally there are special requirements you have to meet in order to be eligible—for example, with a VA loan, military veterans can buy a home with no down payment. There are also FHA (Federal Housing Administration) loans that come with a 3.5% down payment, and more. You can find out more about low down payment mortgages on Bankrate.
Consult a down payment assistance program
There are tons of programs out there that can help you pay a down payment on a home, or lower the down payment you need to put down when buying a home. According to Freddie Mac (AKA the Federal Home Loan Mortgage Corporation) these are the three main types of down payment assistance:
- Grants: This is money you get from an assistance program that you don't have to pay back, under the condition that you own and live in your home for a certain amount of time.
- Second mortgage loans: Like the name implies, this is when you take out a second mortgage—it's the most common form of down payment assistance, and often come with low or zero interest rates with deferred payments for a set period of time, and loan forgiveness after a set period of time.
- Mortgage credit certificates: Some agencies and local governments will issue mortgage credit certificates, which are essentially tax credits—they reduce the amount of federal income tax that you pay, which means there's more money available to you to make a down payment or cover closing costs.
Getting down payment assistance depends on your individual situation, where you live, and the home you're trying to buy, but here are some programs and resources to look into to get you started:
Down Payment Resource is a company that helps connect people with financial resources and creates opportunities for homebuyers and realtors, connecting them with programs that can help them. The company works with Realtors, Multiple Listing Services (MLSs) and Housing Finance Agencies (HFAs) to get homebuyers into homes. You can use DPR to find out if you're eligible for different assistance programs.
Wells Fargo, in collaboration with NeighborWorks America, offers a few LIFT programs that help "support sustainable homeownership and advance neighborhood stability," according to the institution's website. These include HomeLIFT, CityLIFT and NeighborhoodLIFT, and they help prospective homebuyers apply for down payment assistance from local nonprofit organizations.
Freddie Mac's Borrower Help Network was specifically created to help prospective buyers prepare for homeownership, understand their credit, get mortgages, and avoid foreclosure. There are 13 locations throughout the United States where you can talk to someone in person and get assistance, or you can discuss your options with a representative over the phone.
Your state and local government
Since down payment assistance can work differently from state to state (and even in different cities), it's important to research the resources that are available to you from your own state and local government. You can search through homebuying resources in your state on the U.S. Department of Housing and Urban Development website.
Use your IRA or 401k
Tapping into your retirement funds is difficult and should be avoided—this article from TIME explains why it's especially not a good idea to take from your 401k—but it can be done if you so choose, under certain circumstances. Leave this as your absolute last possible resort, but if this is something you want to do, Money Crashers has an explainer on how it all works.
Ask family trusted members (if you can)
If you have family members you can trust, and you can't come up with the down payment funds elsewhere, it might be worth it to ask them for help. But remember mixing money with relationships—no matter how close you are—can be complicated. If you do borrow money from your parents or other family members, make sure you all agree on the terms and that you all feel good about it—the last thing you want is for it to impact your relationships and cause regret later on.