5 Secret Sources of Down Payment Money

Whether you are planning to put down a full 20 percent or pulling together the cash for a 3.5 percent down payment for an FHA loan, your down payment might be the biggest single cash expenditure you ever make. Some scrimp and save for years, while others can ready the cash with less difficulty, but no buyer in the history of home buying has ever said they have too much down payment money. 

Here's an insider secret: many buyers have a treasure trove of down payment resources at their disposal, hidden in plain sight. Here's a map to this hidden treasure – a handful of frequently-overlooked sources of down payment funds. 

1. Your budget's biggest line items. 

Home buying is one of those push-meet-shove-type situations. If you're serious about coming up with down payment funds then start by reviewing your monthly budget or last month's checking account statements. Isolate your top 10 budgetary line items and do an internal gut check on whether there is anything on this list that you can slash or eliminate.

If you spend $5 a workday on a bagel and coffee and another $15 on your takeout lunch, that's $400 per month – almost $5000 a year! – you can save by bringing these things from home (not to mention the health and other benefits you'll gain). And those numbers are not inflated if you work in a big city. Nor is the $100/month cable bill, the $20 yoga class, the $2,000 vacation, or the premium pricing you might be paying for cell service.

Redirecting the dollars you would normally spend for some of these big-ticket items back into your down payment savings account is like pressing fast forward on your home-buying timeline. 

2. Your stuff. 

When you need to save money, there are two levers you can pull: you can spend less, or you can make more. Selling stuff you already own and don't use is a relatively painless way to make more money for your down payment. If you're serious about home buying, put everything on the table. 

Things buyers-to-be often sell (usually online) include:

  • RVs, cars, and motorcycles
  • designer clothes, costumes, shoes, and handbags
  • underutilized hobby-related gear (bikes, boats, and snowboards)
  • furniture and antiques
  • electronics, books, and CDs (think: TVs, computers, old smartphones, etc)

Don't underestimate the amount of cash you can bring in from the things you already own.

3. Your skills and time.

One way to make more money is to sell off the stuff you have lying around and the other is to get to work! Spend your off-time, evenings, and weekends leveraging your professional skills or personal hobbies to bring in some extra cash.

Once you get serious about coming up with your down payment cash and decide to be creative about where to find that money, using your skills and your time creatively is a power-packed way to open the financial floodgates.

Consider starting with a simple email to your circle of acquaintances outlining your skills and what kind of work you'd like to pick up. You can also list your services on a site like TaskRabbit. If you are crafty, you might let your new felting hobby stock the virtual shelves of your shop on Etsy. Even if you aren't "creative", think creatively about what you might do to earn a little extra cash. One acquaintance of mine has earned thousands of dollars dog sitting while she works at home. You'll be surprised by how much you can earn hawking wares on the side or with small business projects, like research, bookkeeping, or office organizing projects.

4. Your Parents, Family, and Friends.

Many home buyers get by with a little help from their friends (and relatives). Most mortgage programs will allow a portion of your down payment to come in the form of 'gift money,' which is exactly what it sounds like, money someone gives you to help you buy a home.

It's ideal to find out what sort of gift money you can count on as far in advance as possible, as it will impact your own savings targets and your lender's documentation requirements. If you have a parent, sibling, or aunt who has mentioned their interest in giving you this gift, it is important to bring the subject up, express your gratitude, and let them know you're planning to buy. You'll want to have a detailed conversation about logistics and go over everything from timelines to tax obligations.

Check with your mortgage pro about how much of your down payment needs can be satisfied with gift money – guidelines vary widely based on how much cash you have to put down and what loan programs you're applying for. Lenders almost always require that gift money be contributed along with a gift letter that states that the giver is a relative and that the money is a gift, not a loan. The lender may also require a bank account statement from the giver showing that the money was theirs to give to confirm they didn't go out and get a loan that they expect you to repay.

5. Your Assets.

Some retirement accounts allow you to borrow against or withdraw funds, penalty-free, to apply them toward your down payment on a home. Your specific circumstances will determine if it is advisable to tap into your 401K or IRA and plug that cash into a house. For some buyers, it may make sense to get your down payment up to 20% by borrowing a few thousand dollars from yourself!

If getting your down payment to 20 percent by borrowing from your 401K gets your mortgage interest rate down and allows you to repay that cash to your retirement account (vs. to your mortgage lender), you and your financial advisor might agree that this is a good approach for you. Using retirement accounts is a highly personal decision and should be made cautiously and strategically.

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