Down Payment Strategies for First-Time Home Buyers

Today I am sharing 5 down payment strategies for first-time home buyers. Coming up with a down payment for a new home can be overwhelming. While there are many loan programs with low down payment options, not every buyer has that much money available in a savings account. Even a 3% is a sizable down payment. It’s a good idea to have a plan and decide how you can secure enough money for your down payment.

To help ease the overwhelm, I am sharing 5 down payment strategies for first-time home buyers. These strategies can be applied regardless of home prices or the type of mortgage loan you use. Having some money saved prior to making offers will make your home search less stressful, and will lead to a smooth home-buying process.

Down Payment Strategies for First-Time Home Buyers

1. Save Money Over Time

One of the most straightforward ways to get your down payment is to save up for it. This might take some time, but it’s a great way to build a solid financial foundation for your future home. Decide ahead of time how much you feel comfortable saving. It can be 5%, 10%, or any set amount of your monthly income that you decide. If your employer allows you to split your paycheck into different accounts, it would be in your best interest to have that money deposited straight from your work to the bank. Be sure to put the money in a high-interest savings account. The one I’m loving right now and highly recommend is Social Finance (SoFi).

2. Gift from Family

Another strategy for securing a down payment for your first home is to receive a gift from family members. If you’re lucky enough to have parents or a family member who is in an excellent financial situation, a monetary gift to go toward the down payment can give you the extra money you need quickly. Keep in mind that for loan purposes, monetary gifts from the family must be documented with the lender and reported as a gift, not a loan.

3. National and Local Grants for First-Time Home Buyers

The u.s. department of agriculture assists in providing affordable homeownership opportunities to low-to-moderate-income households to promote economic growth in rural areas throughout the United States. In Northern Utah, the own in Ogden program assists home buyers with downpayment and closing costs when purchasing a home in Ogden. So, be sure to research your local city for first-time home buyer programs. You can also check with your local mortgage lender and ask about grants, low-interest loans, or other forms of financial assistance for your first home purchase.

4. Get a Second Job or Side Hustle

The options for making money on the side are much better now than they were years ago. Whether it’s rideshare, virtual assisting, social media management, food delivery, freelance, dog walking, etc. you can make money from the comfort of your home and make the most of your extra time. In just a few months, you’ll have a downpayment saved and can get started on the road to homeownership.

5. Withdraw or Borrow From your 401(k) or IRA

This strategy is more advanced and required that you have a significant amount of money saved in your retirement account. You may be able to withdraw money from your 401(k) or IRA without penalty to use as a down payment on your first home OR you may be able to take out a loan and pay yourself back (with interest). However, it’s important to check the rules for your specific account, as there may be taxes or penalties associated with these withdrawals. Check with your employer and your financial advisor if you’d like to use this option to make sure you are well-informed and are able to avoid a tax penalty down the road.

Frequently Asked Questions

Are there zero-down options for first-time home buyers?

Zero-down options for first-time home buyers include government-guaranteed loans such as FHA (Federal Housing Administration) and VA (Veterans Affairs) loans, as well as some conventional loans. Some first-time home buyer programs also offer down payment assistance (you can borrow your down payment), which can help buyers purchase a home with no money down. However, it’s important to remember that these types of loans may have higher interest rates and more stringent requirements than traditional loans. They also don’t include closing costs or may not be available at the time you’re shopping for your first home. Loan programs change all the time depending on market conditions, so it’s always best to consult with a mortgage professional to determine the best loan options for your specific situation.

Do I need to have the entire downpayment saved before I start shopping for my first home?

You don’t have to have all of your downpayment saved before you start shopping for your first home; however, you should have it ready by the time you close on the loan 4-5 weeks after your offer is accepted. Keep in mind that you have to pre-qualify for the loan and be able to make the monthly payments based on the purchase price. Once you’re under contract, you will have 4-5 weeks before you close and can save more during that time. If you need more time to save, you may want to consider new construction. Your builder can begin construction with a small deposit. You can then save the rest of the down payment and closing costs over the course of 8 months to a year until you close on the loan.

There are a number of down payment strategies for first-time home buyers. You can save up for it, receive a gift from family, take advantage of first-time homebuyer programs, get a side hustle, withdraw money from your retirement accounts or look into down payment assistance programs. You can also take advantage of new construction where you can “buy a house” first, then save your cash while your home gets built. There’s also zero-down options with FHA loans, VA loans, and conventional loans if you meet the qualifications.

Which of these strategies would best fit your lifestyle and situation? I recommend you pick one, plan to save a specific amount, give yourself a timeline, and get saving! You can do it!

What Happens Next?

To learn more about these options and other helpful information for first-time homebuyers, you will need a good real estate agent to help connect you with reputable lenders and help you through the buying process. If you’re shopping in northern Utah, I would love to be a resource and help you buy your first home.