On the highway to homeownership, coming up with a sufficient down payment continues to be one of the biggest roadblocks. In fact, many prospective home buyers, particularly first-timers, find it hard to overcome this challenge without the kindness of loved ones.
Among recent home buyers age 28 and younger (who are more likely to be first-time home buyers), 28% got down payment help from a relative or friend, according to a 2019 report from the National Association of Realtors. With home buyers ages 29 to 38, 21% relied on down payment gifts.
But turning on the family money faucet isn’t an option for everyone. And not all home buyers have friends with spare cash to contribute. That’s OK; you can help yourself buy a house. Here’s how:
1. Coddle your credit score
A higher credit score is the key that unlocks low-down-payment mortgage options, down payment assistance programs (more about those below) and attractive mortgage interest rates. Credit scores aren’t based on how much money you make, but how you manage the money and debts you have.
How to do it: Check your credit report often and fix any errors, keep your credit card balances low and pay them off when you can, and avoid late bill payments like the plague.
2. Seek out low-down-payment loans
Many people think you need a 20% down payment to buy a house — but they’re wrong. Qualified buyers can get a conventional loan with a down payment as low as 3%, an FHA loan with 3.5% down, or VA and USDA loans with no down payment at all. Lower down payment requirements can reduce the amount of time needed to gather sufficient funds, which means you may be closer to your housewarming party than you think.
How to do it: Contact lenders that specialize in low- and no-down-payment mortgages, to get a list of qualification requirements. If you’re not ready now, ask what you can do to get ready.
3. Take advantage of down payment assistance
Nearly every state offers a down payment assistance program for first-time home buyers. Some city and county governments offer assistance as well. These programs may provide grants (read: free money), as well as zero-interest forgivable or deferred-payment loans you can use as a down payment. These programs often have income limits and credit score requirements, and they may require you to complete a home buyer education class.
How to do it: Investigate first-time home buyer programs in your state. Read over the eligibility requirements for down payment assistance. If you have questions, talk to a participating lender or contact the agency directly.