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5 Ways To Fund A First Time Homebuyer Down Payment

So, you’ve decided to buy your first home. You might have even picked out your ideal neighborhood and visited a couple of open houses. But at some point you’ll face one inevitable question: how am I going to come up with my first time homebuyer down payment?

Though there are many exceptions to the rule, conventional wisdom states that you should aim to have saved 20 percent for that first time homebuyer mortgage of yours. With home prices often ranging in the hundreds of thousands of dollars, this can be a challenge.

Here are five creative ways to come up with a first time homebuyer down payment and make that dream (first) home of yours a reality.

How to Come Up With a First Time Homebuyer Down Payment

First time homebuyer tips

1. Automate your savings

There’s no question one of the most common effective ways to generate the funds needed for buying a home is to “save, save, save.” In fact, one of the best first time homebuyer tips you can adhere to is to save as much money as you can — not just for a down payment, but for other expenses as well — before embarking on your home purchase.

But like many things in life, “saving” is easier said than done. One remedy for this is to automate your savings by making it so systematized you hardly notice it occurring.

You can do this through a variety of methods:

  • Automatic monthly transfers: Have money automatically deposited into your savings account of choice.
  • Online apps: One such app, Acorns, rounds up purchases to the nearest dollar, then deposits that money into a savings (or investing) vehicle.
  • Cash-back credit card: Just be sure you “save” the surplus, not spend it on lattes.

2. Bank every raise

Receiving a pay raise from your employer, or any other type of lump-sum payment, is definitely cause for celebration. But instead of purchasing that brand-new TV, or new car you’ve had your eyes on, a better strategy is to direct that money toward your eventual down payment.

Chances are, you’ve already grown accustomed to your current income level and how to live within your means. Instead of earmarking that boost in income toward discretionary purchases, divvy out that monthly surplus (even if it’s just a few dollars) toward your “down payment fund.”

And “raises” can be applied to many different types of income boosts: tax refunds, prize money, year-end bonuses, Christmas gifts, etc. The key is one of mindset; Instead of seeing this boon in finances as a chance to buy “stuff,” you should view it as an opportunity to get you closer to your down payment goals.

3. Take advantage of special programs

Just because you don’t quite have the funds for your down payment doesn’t mean you can’t purchase a house. In fact, there are many first time homebuyer assistance programs, and homebuying programs in general, that offer would-be homebuyers assistance with their down payment.

These programs, and their eligibility requirements, can vary as much as home prices. But some options to look at include:

  • Professional groups
  • FHA Loans (For first time homebuyers)
  • VA Loans (For veterans and active service members)
  • USDA Loans (For those purchasing in rural areas)
  • Good Neighbor Next Door (For law enforcement and firefighters)
  • Local first time homebuyer grants and programs
  • Non-profit organizations
  • State agencies
  • Employers

4. Sell your stuff

By “stuff,” we mean almost anything that can be sold (or liquidated) to generate cash for your down payment. This includes things like:

  • Vehicle: Whether it’s a car, boat, motorcycle or piece of expensive sports equipment, see if you can sell (or trade-in) your pricy model to boost your cash reserves.
  • Possessions: Doesn’t matter if it’s having a garage sale to sell your extra stuff, or putting up for auction those collectibles you’ve been holding onto for years, selling possessions can be one of the quickest ways to pad that wallet.
  • Taxable investments: Converting inefficient taxable investment accounts, such as stocks and bonds, can help boost your down payment reserves.

5. Family gifts

One of the more common ways to provide a boost to your down payment reserves is to ask for help from family members, especially parents.

Though it sounds like a slam-dunk solution to your down payment woes, there are a few hoops to jump through when acquiring down payment funds this way:

  • You may need a “gift letter.” Many of the programs mentioned above will let you use gifts from immediate family as part of your down payment. But you will often need a “gift letter” verifying that the money exists.
  • You may need to show wire transfers or check copies. Be sure to keep your records as organized as possible.
  • Family gifts may affect your borrower credit worthiness. If a family member is willing to give you your down payment early, months before you start applying for mortgage loans, it may be fiscally wise to do so.
  • “Danger, Will Robinson!” Large financial deposits, especially those close to your loan pre-approval stage, can raise red flags during the loan process.

“A penny saved…”

Collecting the funds necessary for a first time homebuyer down payment can be a daunting task — especially if you can’t rely on proceeds from the sale of a previously-owned property.

But by utilizing simple and effective down payment strategies — whether automating your savings, selling your non-essential items, or researching down payment assistance programs — you may find the process of buying a home far simpler, and less overwhelming, than you think.

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