If there’s one obstacle many millennials state that prevents them from buying a home, it’s the down payment. Many millennials feel 20% down is crucial. While it’s definitely not the case today, 20% down definitely helps. If you are among the group that feels you can’t buy a home until you have enough to put down, learn the strategies that can help you reach that point faster.
Direct Deposit Your Savings
Automating your savings takes the thinking out of putting money aside. Oftentimes we are guilty of spending before we even have the money in hand. This leaves nothing left for saving. What if you made it automatic, though? Dedicate a specific percentage of your paycheck to your savings account automatically. Just like a direct deposit into your checking account, you can do the same for your savings account.
Automate Your Savings
Some banks or other automation programs allow you to set up ‘rules’ for saving. The round-up rule is the most common. If you round-up each purchase you make to the nearest dollar and put that money aside, your savings can add up just by making your regular purchases. This strategy is best used as an add-on to other strategies because it’s certainly not a get rich quick scheme.
Accept Down Payment Gifts
Many loan programs including conventional and government-backed loans allow the use of gift funds from family members or employers. If someone close to you is willing to give you money for your down payment, make sure you accept the funds properly.
Most loan programs require you to accept the funds via check so the bank can trace the funds’ origination. Banks also require that you have a gift letter from the donor that states the exact amount of the gift, the reason for it, and that it’s not a loan. Lenders need to make sure you didn’t borrow the money rather than receive it as a gift. If the money is borrowed, you must pay it back, which means the lender must include the payment in your debt ratio.
You can avoid that scenario by receiving the gift letter and following the lender’s rules on how to accept and deposit the gift funds.
Register for Down Payments
Are you getting married soon? Do you already have the necessities to start living in a home? Maybe you should consider skipping the traditional bridal registry and instead ask for money towards your down payment for a house.
Just as you must do with gift funds, you’ll need to get in touch with your lender on how to document the use of these funds. If you are far enough out from the home purchase, you won’t have to talk to a lender. You can take the funds, deposit them, and then leave them in your account untouched, allowing them to season. If they sit in your account for six months, a lender will likely use them at face value without asking for proof of their origination. Just in case, though, always keep adequate proof of the funds and how you received them to prove that they are not a loan.
This may not be ‘creative,’ but it can help you save for your down payment. Ask your employer about the possibility of overtime. You’ll earn higher pay for fewer hours worked. You don’t have to work the extra hours forever, but just long enough to give your nest egg a boost so you can buy the home of your dreams that much sooner.
Work a Side Gig
Today it’s easy to start a side gig with the help of the internet. Think of the things you are good at and how you can put them to use. You can start a freelance writing business, sell crafty items on Etsy, or offer your virtual administrative assistant services from the comfort of your own home.
If you want to do something outside of the home, look for side gigs you can do. Waiting tables or driving an Uber is two of the most common side gigs, but the options are endless. Do you have a trade, such as carpentry? Try doing side jobs on nights and weekends, pocketing the cash for your down payment.
Sell Your Stuff
Do you have stuff sitting around that you don’t use? Your junk may be someone else’s treasure. It’s easy to hold a ‘virtual garage sale’ online through the use of social media sites or dedicated garage sale sites. Post your items and see what you can get for them. You never know when what you picture as an ‘antique’ and useless is a treasure in someone else’s eyes.
Getting creative can help you come up with the down payment you need to buy a home. If you can’t come up with 20%, don’t worry. There are programs, such as the FHA loan, that allow just a 3.5% down payment. Talk with a lender and explore your options before you give up on the possibility of owning a home.Click to See the Latest Mortgage Rates»