How Can I Get Money for a Down Payment on a House?
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When deciding to buy your first home, there are two important factors you need to address right off the bat. One, can I afford the monthly payment? Two, how much do I need to put down on a home?
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For most first-time homebuyers, the tougher of the two questions is the down payment.
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You might be asking, is there down payment assistance for first-time homebuyers? Yes. In fact, there are a lot of options, programs and loan types.
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Can you use multiple down payment assistance programs? Yes again, although it depends on what programs you hope to bundle. For example, you can combine a family gift with a low down payment loan.
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If you qualify for a VA loan, you won’t need a down payment. But almost every other loan type, including an FHA loan, will require you to make a down payment.
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Some first-time buyers may qualify for down payments as low as 3%. But it’s more common to find down payment requirements of 10% or more. Fortunately, there are first-time homebuyer down payment assistance programs and helpful tips that can make things easier.
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How can I get money for a down payment on a house? Let’s start exploring the options.
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These are the most common options to afford the down payment on your first home. We suggest working with an experienced loan officer to help you understand your options.
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Family Gifts or Loans for Your Down Payment
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A good portion of first-time buyers will have a family member help cover the cost of the down payment, or provide a loan so you can afford the cost.
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Know this: having a family member cover a portion of the down payment is not as simple as it seems.
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While it would be nice if they could just cut you a check, the lender will require more than their check. The lender will also need to verify that this was indeed a gift and that your family member has the financial means to make this gift. To do this, your family member will need to provide bank statements as well as a letter confirming the money is a gift and not a loan.
If any money from a family member is a loan that you are required to pay it back, it is considered an outstanding debt and the lender needs to know about that too.
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You should also be aware of this. Using a gift to cover the entire down payment can be a red flag for some lenders. Historically, first-time homebuyers who used a gift to cover the down payment have a higher default rate than those that used their own money to cover a portion of the down payment.
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Low Down Payment Loan Programs
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You can find loans available for first-time homebuyers that have low or no down payment requirements.
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No Down Payment Loan Options for First-Time Homebuyers
If you are a former military member, active military member or a spouse of a deceased military member, you can qualify for a VA loan. It’s one of the best loan programs available as it allows you to purchase a home with no down payment. But VA loans are not your only no down payment option.
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A USDA loan, backed by the Department of Agriculture, is another no down payment loan option. And while the name may suggest otherwise, these loans are not exclusive to farmers. A USDA loan can be used in homes in rural areas, be it a farm or just a home.
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Low Down Payment Government Loan Programs
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If you don’t qualify for either a VA loan or a USDA loan, your next best option is to explore an FHA loan backed by the Department of Housing and Urban Development. With an FHA loan, your down payment will depend on a variety of factors, but it can be as low as 3.5%, making it a very attractive and affordable option.
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For a little perspective, the median U.S. home price for 2020 is projected to be $270,400. If you qualified for a 3.5% down payment, you need to have $9,464 to cover the down payment. And yes, there will be other fees involved, so it’s best to talk with a loan officer or to use a down payment calculator to get a more accurate expectation of the cost.
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Conventional Loan Options with Low Down Payments
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You don’t need to have a military affiliation, be moving to a rural area or have a history of bad credit to qualify for a low down payment loan program. If you have a stable financial past and good credit score, you may be able to qualify for a conventional loan with a down payment rate as low as 3%. Of course, the exact rate will depend on your situation, but a conventional loan is considered the most attractive option (outside of a cash offer) for a seller looking at multiple bids.