5 Ways to Find Extra Money for a Down Payment

Down Payment Money Can Make a Huge Difference

In order to buy a home, you need to have a balance of good credit, manageable debt, stable income, and sufficient savings. Maintaining a balance between these four categories is challenging enough on its own, never mind coming up with enough cash as a down payment to close on your potential new home.

If you’re worried about the credit part, you can see what you can potentially do to improve by viewing your free credit report summary, updated every 14 days, on Credit.com. And, if cash flow is your issue, here are some ways you can find extra money for a down payment.

1. Move in With Family

What? Heck no you say? Well, hear us out.

Having a nearby family member that will let you move in for a little while is a great way to save money on rent. It’s nice to live alone, but saving that $2,500 per month is a financial home run. In exchange for a little less privacy, you can start saving big money in a shorter amount of time than you would have by continuing to pay $2,500 per month. A spending analysis can help determine some of your biggest expenses to be cut. This can yield huge dividends for you in the future and could be the means of collecting the down payment for your new home.

2. Retirement Funds

Did you know that some retirement accounts let you draw from your reserves early in order to pay for your first home? Every retirement account is different, so it is a good idea to contact your human resources department to review your 401K, or a bank/financial adviser to review the terms of withdrawal from your investment account. In most cases, if it is a first home (i.e., you have not owned a home in the last three years), you can borrow from yourself to finance your down payment or cash to close. There can be tax penalties for withdrawing early, so be sure to review your terms.

3. Cash-Out Refinance

If you already own a home, it might be worth considering a cash-out refinance on your current home in order to pay for another one. Fannie Mae and Freddie Mac have recently taken kindly to this approach by changing the equity position in a departure residence to purchase a new primary home. Completing a cash-out refinance on your current home to purchase another is a form of leveraged debt and will allow you to purchase with a stronger offer. Just be sure this makes sense for your finances before you apply.

4. Sell a Home

In a similar scenario, by already owning a home with equity, you can sell your home in order to buy another one. For example, if you have $150,000 of equity in your current home, you can sell and use that equity as a down payment to acquire another. The challenging aspect of this is that these scenarios are contingent upon one house selling. If the buyer backs out of the deal, your ability to secure the house you are in contract for will be at risk.

This method should be approached with caution and only with a real estate agent who can walk you through the ins and outs. Education is key to a successful dual transaction like this.

Use this FREE spending analysis worksheet to reduce your spending and save a bigger down payment.

5. Sell Personal Property

As much as we like our things, it is nice to have a roof over our heads we can call our own. If you have any toys or big-ticket items like a boat, motorcycle or novelty, those can be sold to generate cash for buying a home. In order to use these funds, you need to keep all documentation while selling the item. If you do not have supporting documentation, the cash cannot be used.

If you are looking to see what it takes to buy a home, we recommend talking to an experienced licensed mortgage professional. If you do not have the necessary means to acquire cash quickly or efficiently, talk to your mortgage professional about programs that require little to no down payments or lenders who have down payment assistance available. And, of course, be sure to determine how much home you can comfortably afford (more on how to do that here).

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Comment List

  • Alexis @FITnancials 13 / 03 / 2017 Reply

    Moving in with family is such a good idea when you’re trying to save for any kind of large expense. I’ve noticed a lot of 20 somethings moving back in with their parents after college to save money and pay off student loans. I think it’s a great idea!

  • Moving in with parents definitely saves a load of money! We did this when we were saving for a house. Wish I had some large money items to sell for more money though!

    • John Schneider 30 / 04 / 2017 Reply

      Sorry for the long delay. I don’t know if I could do it now after all these years, but I guess anything is possible to save a few bucks over a few months right? 😛

  • Adriana @MoneyJourney 15 / 03 / 2017 Reply

    It’s been almost 10 years since I moved to a different country, so living 800 miles apart makes the moving in with family strategy a bit difficult 😀

    However, we did some serious downsizing a few years back. We save a lot on rent (compared to what we paid before) and on utility bills as well. Meanwhile, we also learned to focus on saving more and spending less, so when we’ll decide to become home owners, I believe we’ll definitely manage to save for a ‘serious’ down payment!

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