How do I come up with a down payment for a house?
Finding money for a down payment on a home can be a challenge for some homebuyers. A large sum of cash can be hard to find. To make things more problematic, you cannot borrow for your down payment, and you must be able to prove the source of your money to a lender. So, how do you come up with thousands of dollars? Here are some possibilities:
1. Your savings account – Set an attainable goal and plan to set aside a specific amount of money each payday to meet that goal. In addition, here are some ideas that you can follow to assist you in saving for that your down payment:
- Get a second job and use that money for your down payment
- If you plan to use your next tax refund for this goal, consider adjusting your withholding so you are bringing more money home in your paycheck.
- Clear out the clutter. Look around at some of the things that you have accumulated but really don’t need. Garage sales, ebay, and Craigslist are all ways to sell used items.
- Save your coins. Find a large glass container and throw all of your change in it at the end of every day. Once a month, clear it out and place the money in your savings account. You will be amazed at how quickly this adds up.
- Gift giving. If you want to save money while also giving generously, create your own homemade gifts. You can make food mixes, candles, fresh-baked bread or cookies, soap, and all kinds of other things at home quite easily and inexpensively.
- Entertain at home. Instead of hitting the town, host a fun pitch-in dinner with your friends. Play cards, sit around a fire pit, or watch movies with your guests. You’ll all save money – and have a blast.
- Share your dream of owning a home. This seems like an odd way to save money, but think about it. If you spend lots of time with the people you love the most, and share your dream with them, it becomes easy for everyone to work with you toward your goal.
2. Gift letter – Although you cannot borrow money, it can be gifted to you from a family member. If you are gifted money, the lender will require your donor to sign a gift letter that states the money is a gift and will not need to be repaid. The donor will also need to provide their contact information, the purchased property address, and the amount and source of the gift. Documentation of the withdrawal and transfer of gift funds will be required.
3. 401(k) – There are some situations in which borrowing from your 401(k) may be an option. However, many financial advisors would advise against withdrawing funds from your 401(k) due to penalties. Some 401(k) plans do allow for you to take out funds penalty free if applied to a down payment for your home. Again this is something that you would need to consult your financial advisor about.
4. Tax Return – Are you expecting a tax refund this year? If so, this may cover your down payment ($1,000 needed for NIFA loans), or it could go a long way in bridging the gap between your savings and the amount needed for your down payment.