Coming up with the funds for a down payment on a new home may seem overwhelming at first, but it is possible by developing a solid plan and sticking with it.

One of the biggest factors when you’re purchasing a home is the amount of money you have available for the down payment. During the loan process, the underwriter will want to see evidence that the money belongs to you and has not been borrowed or received from another source.

Got a friend or family member who’s willing to help you with the down payment? No problem. Several programs allow “gift funds” so long as the person helping you is willing to provide a letter stating that it’s a gift with no required repayment.

One important thing to understand is that you must be able to show the underwriter that you have sufficient assets to cover the down payment as well as any other cash that’s required to close the loan. Following are the most common assets that are documented to prove that you have enough money:

  • All Checking and Savings Accounts
  • Stocks, bonds, stock options, retirement plans (i.e. 401k balance)
  • Gifts from family members
  • Other liquid assets

Another thing you should understand is that some loan programs, such as FHA, require mortgage insurance regardless of the amount of your down payment. Other loan programs only require Private Mortgage Insurance (PMI) if your down payment is less than 20% of the purchase price and/or appraised value of the property you’re buying. Mortgage insurance will increase your monthly payments slightly, but the benefit is you can still purchase a home even if you don’t have a 20% down payment.

Ask one of our licensed mortgage loan originators to explain this to you if it will apply to your situation.

Look for all the places you can save

You might be surprised at the places where you can save a little each month, despite having a stack of regular monthly bills. It could be as simple as cooking at home more often instead of going out to eat. Figure out all the areas where you can save by analyzing your spending and you’ll likely find the money adds up quickly.

You probably won’t need to implement all the ideas listed here. Think about your own financial situation and determine which ones might work best for you.

  1. Establish a savings account just for your down payment. If you’re paid by direct deposit, most employers will allow you to split your paycheck between two bank accounts. Set up a savings account and have a portion of each paycheck diverted into it. By doing so, you’ll be less tempted to spend that money on other purchases and you’ll consistently save for your down payment.
  2. Get an extra job. Does your schedule afford a few extra hours each week to pick up some cash on the side? If so, think about ways you can earn a little additional money on top of what you’re already saving. Whether it’s freelancing, driving for a ridesharing app, or working at a part-time gig on the weekends, you might be able to boost your savings with an extra job. Be disciplined with the money you earn and make sure you deposit into your savings account.
  3. Let that vacation wait. Everyone likes to get away, but vacations cost money. Take a temporary holiday from vacations while you save for your new home. You can still find plenty of fun things to do in your local area or plan a day trip to a destination within driving distance.
  4. Attack your debt. Having debt not only affects how much you can save each month, it can also affect the amount of money you can borrow for your home purchase. If you have credit card balances, pay those down as quickly as possible. Explore your options for refinancing student loans at a lower interest rate.
  5. Ask for cash instead of gifts. When the next birthday or holiday comes around, don’t be shy if family or friends ask what gift you want. Instead of the latest gadget, ask them for cash for your down payment. The gift-giver will feel satisfaction helping you with such an important purchase, and you will be that much closer to making your new home a reality.
  6. Rent out an extra bedroom. If you have a spare room, put it to work for you. Websites like Airbnb let you control when the space is available for rent, so you can set up a schedule that’s convenient for you. It’s not right for everyone, but this is an option to consider if you have extra room that could generate funds for your down payment.
  7. Keep an eye on the job market. Finding a job that pays you more can accelerate the pace of your savings. Compare what you earn in your current job with similar positions in your region. Ask for a raise from your employer if you feel you deserve it, or consider opportunities with other companies. Many factors affect a job change, so consider this option carefully. It doesn’t hurt to see what other roles might be a good fit for you and your budget.
  8. Temporarily stop or reduce retirement savings. If you’re saving a healthy amount toward retirement already, you might consider this option to quickly boost your down payment fund. This approach generally makes more sense the younger you are; if you’re nearing retirement age, it’s probably not the best strategy.

If you decide to slow down or stop your retirement savings, establish a specific amount you want to save using this method, as well as a firm date for resuming your retirement contributions.

Consistency is the key to saving the money you need for a down payment. By following these tips, you’ll quickly develop habits that will help you put money aside on a regular basis. The payoff will come soon enough—when you move into your new home!

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