Wondering how to come up with the down payment for your hoped for first home? Don’t tap that IRA account quite yet; you could be endangering your retirement.
If you are thinking about purchasing a home in 2021, then one of the best things you can do is to start saving for your down payment now. In this article, we’ll cover how much you’ll actually need for a down payment and go over a few financial tips for homebuyers to help you meet your down payment goals.
In This Article:
- How Can You Ensure You Will Have Enough Money For Your Down Payment?
- Can Your Parents Help You Put Money Down?
- Can The Seller Cover Your Down Payment?
- When Can A Borrower Consider 100 Percent Financing?
- Should You Tap Into Your Retirement Funds For Your Down Payment?
Saving up for a home purchase is no small feat. In fact, typically, the first thing people do when they plan on purchasing a home in the next couple of months is to start saving up for the down payment. The average down payment in America is equal to about 6 percent of the borrower’s loan value. However, it is possible to buy a home with as little as 3 percent down, depending on your loan type and credit score. You may even be able to buy a home with no money down if you qualify for a USDA loan or a VA loan. This means that the days of lenders requiring 20 percent for a down payment on mortgage loans are definitely gone.
In other words, if you are thinking about a home purchase sooner rather than later, the good news is that you do not have to struggle to come up with a rather large down payment, especially if you plan ahead. That said, here are seven ways you can reach your down payment goals in time to buy your dream home in 2021.
Bank Your Tax Refund
Regardless of the amount you are aiming to put down, if you devise a plan to save your down payment money earlier, it will be that much easier to reach your down payment goals in time to buy a home this year. One of the best ways to get the ball rolling here is to save your tax refund. And there are actually a couple of ways you can do this. For example, you can choose to increase your federal income tax withholding. Alternatively, if this option is not feasible, then when or if you get a tax refund, you can put that amount of money into an interest-bearing account instead of spending it on other things.
In addition to saving your tax refund, you should set up a savings account anyway to help you grow your down payment. Again, you will not make thousands of dollars in interest over the course of a year or even a few months. But having funds automatically taken out of your checking account every month can help ease the burden and make saving for a down payment a more streamlined process since you do not have to think about saving the money; it is just automatically being saved for you.
Along those same lines, you should make it a point to put any other “windfalls” into your dedicated down payment savings account. This means if you get a raise at work, pick up an extra shift, start a side hustle, or even if you play the lottery and win five extra dollars, you
Get a Gift From Your Parents
Another option if you’re lucky is to get a gift from your parents to buy a home. Federal tax law allows each parent to give a certain amount of money to their child tax-free. What’s more, this gift tax exemption increases periodically to keep up with inflation. Note, your lender will likely require proof that the money given to you by your parents was, in fact, a gift and that you are not responsible for repayment.
Many families decide to push forward money that was planned to be part of an inheritance enabling the kids to build equity and wealth earlier in life when it is most needed.
Ask The Seller
You can also consider asking the seller for the money. Surprisingly enough, many sellers are willing to do this if you are willing to meet their asking price. In fact, some will give you the down payment as a credit, pay your closing costs, or both. Though this is not always a guarantee, you won’t know until you ask.
Consider Taking a Slightly Higher Rate in Exchange for a Lender Credit at Closing
When buying a home you should always consider more than one rate and one cost option. A good Loan Officer or lender will present multiple rate and cost options for your review. If you don’t have significant savings when buying a home it often makes sense to take a slightly higher rate in exchange for reducing your upfront closing costs.
Tap Your Retirement Funds
Lastly, if you have access to certain retirement accounts, then you might be able to borrow from them to buy a home. Check with your accountant for current regulations and research which accounts may let you take out the principal balance without a penalty.
Make Sure You See What Government Programs Are Available
Finally, most states offer down payment assistance and first-time buyer programs. Thus, it is crucial that you check out what your state offers, even if you have more than enough money saved up. When it is time to apply for a mortgage, speak with your loan officer or lender about what programs you may qualify for.
There are also government-backed loans that you may be eligible for as well that are worth considering, such as a VA loan backed by the U.S. Department of Veterans Affairs. You should also make it a point to check out county-specific programs and grants that may be available too!
Ultimately, these are just a few things you can do in order to meet your 2021 down payment goals for a home purchase. So remember, saving up for a large down payment doesn’t have to be the goal, and there is no reason to think that a small down payment means your dreams of owning a home this year are out of reach.
Ready to Apply For a Mortgage?
Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.