10 Innovative Ways You Can Swing a Down Payment on a Home
According to the 2016 Profile of Home Buyers and Sellers report by the National Association of REALTORS®, first-time homebuyers typically financed 96 percent of their home purchase. And although 20 percent down payments are rare among first-timers, they continue to cite saving for a down payment as the most difficult step in the homebuying process.
The best way to face this hurdle is with a two-pronged approach: Save as much money as possible, while looking into resources that will help supplement your savings and close the gap between how much you have stashed away and how much you will need.
Innovative Ways to Save
- Use a Mobile Savings App
This is an excellent way to automate savings, without having to think about it too often. The Qapital app lets you set up various “rules” to automate savings—like rounding up to the nearest dollar when you make a purchase and placing the spare change in savings, or automatically transferring funds into your account when you spend less than you budgeted for a certain expense. The Digit app calculates what you can save by looking at your income and spending habits. Neither of these apps earn interest on savings; but you can always transfer sums into a savings account that does.
- Open a First-Time Homebuyer Savings Plan (or give an existing savings account this designation)
This option is somewhat unique to the state of Virginia, and was championed into law by the Virginia Association of REALTORS® and Richmond Association of REALTORS®. A first-time Homebuyer Savings Plan (FHSP) allows any Virginian to set aside up to $50,000 toward the costs of closing on a new home. The earnings on those funds—interest and capital gains—are exempted from Virginia state taxes. For more information and FAQs on FHSPs, visit WeAreTheR.com.
Instead of requesting home goods through an online gift registry, you can now collect funds to use toward a home, through various online crowdfunding options available specifically for this purpose. One such source is featherthenest.com. It’s much easier on friends and family than picking something out—plus, they won’t have to worry about shipping or wrapping. Everybody wins.
- Take Advantage of 0%APR Offers
If you have some credit card debt, don’t blindly continue paying interest as you pay down your balance. Explore your options. Depending on your credit history, you may qualify for a balance transfer with a long interest-free introductory period. Seek and take advantage of these offers, and you are likely to save money and bring down your balance significantly faster. This will free up disposable income for savings and likely give your credit score a boost.
- Do Some ‘Spring Cleaning’
Rid your current residence of clutter, while turning unused or unwanted items into cash by selling them online or at a community sale. Your living space will feel refreshed, and you may be surprised by how highly your unwanted items are valued by others. Besides, you will likely want to start fresh when you begin decorating your new home.
Supplement Your Savings
- Check with Human Resources
Some employers offer housing-related financial assistance to their employees through an Employer-Assisted Housing (EAH) program. Check with your Human Resources department to see whether this type of program is currently offered, or might be considered for implementation. The National Association of REALTORS® promotes the adoption of EAH programs through the Employer-Assisted Housing Initiative. To learn more about these programs, visit realtoractioncenter.com.
- Request Seller Concessions
Sometimes sellers are willing to aid a buyer with closing costs. There are limits on these concessions, depending on the type of mortgage you get, and they must be part of the purchase contract. Significant concessions may be scant in a sellers’ market, but it never hurts to ask.
- Research Statewide and Regional Programs
There are statewide and regional programs to help homebuyers cross barriers to entry. One of these programs, a Down Payment Assistance Grant (through the Virginia Housing Development Authority), can provide eligible first-time homebuyers with funds needed for a down payment. Contact a local REALTOR® for information about additional options.
- Take Advantage of Special Lender Programs
Many lenders (e.g., the Federal Housing Administration) offer programs requiring a small down payment from buyers—particularly for first-timers. Be sure to take the monthly cost of private mortgage insurance into account when exploring these options.
- Leverage Rewards for Your Service
Those actively serving in the military, as well as veterans, will likely qualify for a loan from the Department of Veterans Affairs; requiring little to no money down, while offering a low interest rate and forgiving terms. Some homebuyers who work in civil service-related professions may qualify for a U.S. Department of Housing and Urban Development (HUD)-sponsored program called “Good Neighbor Next Door.” This program offers eligible borrowers a 50 percent discount on HUD-owned, single-family homes located in revitalization areas.
By Kate Landis,
Marketing and Public Relations Manager,
Richmond Association of Realtors® and Central Virginia Regional MLS