When I talk with first time real estate buyers the number one reason they don’t buy a home of their own is the hurdle of the down payment. This article will explain several ways that a new home can be purchased with much smaller down payments than the typical 20% and some ways you might be able to raise the funds for your down payment.
1. The Traditional. Ask your parents or other relatives for a gift of cash to go toward your down payment. Worst thing that can happen is they say ‘No’, which is why there are more suggestions below.
2. The Seems Obvious. Save your money. No Starbuck’s Carmel Frappuccino, no cable or satellite TV, shop for cheaper car insurance, keep the entertainment budget low and strict, forget about vacations. You get the idea.
3. The Tax Man. Do not spend your tax refund. Deposit immediately in your savings account.
4. The 401K gig. You can borrow from your 401K without penalties if you use it for a down payment.
5. The Grant. There are numerous local, state, national and private grant programs available. All have varying requirements but it may be worth your time sorting through them since most Grants do not have to be paid back.
6. The Alphabet Soup. CHFA. Colorado Housing and Finance Authority (CHFA) is a great resource for first time buyers with very low down payments and grants to offset even that cost. Check them out at www.chfainfo.com VA. If you are a veteran or active military, this might be the best path for you. You access through the HUD portal: https://portal.hud.gov. FHA. Federal Housing Authority also uses the HUD portal. https://portal.hud.gov. USDA. Even the Department of Agriculture gets in on the act of helping first time homebuyers. They focus on rural areas but similar to VA loans they guarantee the mortgage (90%) so lenders are more likely to lend. Check out their programs at: https://www.rd.usda.gov/programs-services/single-family-housing-guaranteed-loan-program. You will undoubtedly need assistance to sort through the soup. So a qualified lender came help you tremendously.
7. The transaction savings play. This is the flea-flicker of down payment help. Stay with me on this. When you close on a mortgage you begin paying your mortgage in arrears the following month. This means you are living in your new place for free for a month. Now the money you no longer have to pay in advance for rent, plus your former rental security deposit (if you have a cooperative landlord) can be used as part of your down payment or any other expenses you may incur.
Well, I was able to come up with seven ideas. Let me know if you know of any others. Your feedback is always appreciated. I hope this provided some value/ideas for you. I’d be happy to forward my list of favorite lenders just email me at firstname.lastname@example.org. Thanks and have a nice day.
John Hickey- Andrew Muller Group
RE/MAX of Boulder