7 Easy Steps for Building a Downpayment
While some mortgages are available with 0% down, the vast majority of home loans require at least a small amount. Exactly how much cash you need depends on the loan, the purchase price, and personal factors. Most people, however, will need to build a downpayment.
Unfortunately, many struggle to generate a downpayment, forcing them to stay out of homeownership for years, even decades. But there are ways to increase your savings and generate a downpayment. Through hard work, patience, and (perhaps) the generosity of others, you can build a downpayment faster than you think!
7 Ways to Increase or Build a Downpayment
1. Take a Second Job
Perhaps not the most convenient of all options, this tip is extremely effective. If you have time before or after your current job, you may be able to work in a second job to generate a few hundred dollars a week that can be funneled towards your downpayment. There are a variety of options, from delivering pizzas to working in retail stores, all of which can, if given enough time, help you create a sizable downpayment.
This can be difficult for busy professionals, parents, and students, but it’s not impossible to take a second part-time job that brings in, say, an extra $200 a week. (There is certainly potential for more!) Do this for a year, and you are looking at $10,400. If you can add $400 a week, a year would bring $20,800. Yes, it takes dedication and persistence, and there will be times when you simply want to go home, but a year of sacrifice could bring the downpayment you need for a home you’ll live in for decades.
2. Work an At-Home, Mobile Gig
On the same token, instead of getting an out-of-the-home job, you could work an at-home gig. There are many skills that can be applied to independent, freelance work, including graphic design, accounting, writing, and much more.
This is a more convenient option that usually allows you to work on your own time and at your own pace, and you may be able to bring surprisingly high earnings if you work with the right clients.
3. Sell Valuable Property
Another option for increasing a downpayment is to sell any properties that are not needed and will bring a significant amount. For many people, jewelry, as an example, is one of the most valuable assets that is not land or vehicles. Some people have tens of thousands of dollars worth of jewelry, and, assuming there is no emotional connection, selling it could bring an excellent downpayment.
An extra vehicle could also be sold to generate a few thousand dollars. (Or lots more, depending on the vehicle.) Another option is to sell lots of items in a yard sale or garage sale. This is a lot of work, and may not bring a large pile of cash, but it is an option to consider.
4. Reduce Your Current Expenses
There are two basic strategies to build a downpayment, at least on your own. (There are other options, but they involve charitable or generous support from others.) The first option, which we discussed above, is to increase your income and earnings. The other is to reduce your expenses and funnel the savings into the downpayment.
Depending on your current lifestyle, there could be dozens of ways to reduce your expenses, and if you get creative you can likely cut as much as $200 to $500 a month from your budget.
Possible cost-saving options include:
- Reducing your cable package or going completely to a streaming service
- Skipping the coffee shop and brewing coffee at home
- Reduce insurance coverage so the monthly premiums are lower (Be careful with this one!)
- Stop eating out and cook meals at home
- Cut back on costly vices such as alcohol or tobacco (This will make you healthier too!)
- Eliminate gym memberships and workout at home.
Some of these are easier than others, and some bring more savings than others. But altogether, just a few changes can bring excellent savings that can be poured into your downpayment.
5. Discuss Potential Downpayment Gifts with Family Members
Some people may be uncomfortable actively seeking the help of others, but there is no reason why you can’t use funds from a gift as your downpayment. Downpayment gifts are common in the mortgage and home-buying process, but whether you can use one or not (and how much you can use) depends on the specific lending product.
One of the main stipulations when using funds from another person (perhaps the most important) is that the money must be a gift and not a loan. This will need to be documented in a gift letter, which will be presented to the lender or mortgage agent.
6. Lower Your Downpayment Bar
For a downpayment, it’s not necessarily the dollar amount that matters (at least not directly) but the percentage. For this reason, you can actually increase your downpayment by simply shopping for a lower-cost home. Of course, this means settling for a smaller home, a home further from a metro center, or a house with fewer amenities, but it can help you significantly increase the percentage of your current downpayment. In the end, it could help you break the downpayment barrier and enter homeownership.
For example, let’s say you have $75,000 that you can put towards the purchase of a loan. If you are looking at houses priced around $800,000, that $75,000 only equals about 9.4%, which is, to be honest, enough to qualify for many loans. But suppose you lower your budget and start searching for homes in the $600,000 range. That $75,000 now represents 12.5%, which means you may be able to get better terms on your loan.
7. Look for Downpayment Assistance
There are also public and private programs that can help you grow or establish a downpayment. These programs are generally available to low- or moderate-income families and individuals, and they can be an extremely useful source for funding your downpayment. They are available through local governments, private charity groups, and federal organizations, so talk to your lending agent for guidance on using these programs.
Downpayment or No, We are Here to Help!
If you need help with a downpayment, contact our team for more information. We may be able to find low-downpayment options or guide you to downpayment assistance, so contact us today!