November 20, 2024 link to original article
Drazen Zigic / Getty Images/iStockphoto
Commitment to Our Readers
Buying a home, for most people, is the biggest and priciest purchase they will ever make. Just saving up for a down payment traditionally can take years.
Many people seek out down payment assistance in the form of a loan through a bank, though that doesn’t always work. According to a recent Zillow Consumer Housing Trends report, as many as 31% of respondents reported being denied financing at least once before approval, if they were approved.
Here are some other options available to people seeking down payment assistance beyond the bank.
Local Government Grants and Loans
Local governments and institutions can sometimes offer non-repaying loans or grants, reducing the burdens of coming up with a down payment, according to Yosef Adde, a real estate investor, Realtor and owner of I Buy Houses Torrance. These programs may focus on first-time and low-income buyers.
“For instance, the California MyHome program assists in covering down payment costs in those who wish to buy a house for the first time,” he said. Loan repayment on these is often deferred, easing the financial burdens associated with traditional loans.
Down Payment Help From an Employer
Some employers in specific industries including universities, hospitals or other public employers offer mortgage affordability programs, Adde said.
“An example would be a housing program provided by the employer’s hospital that helped a nurse buy her first home by helping her pay the down payment with a portion of forgivable loans.”
These programs benefit both the employee and the employer by promoting homeownership close to work, increasing the stability of the workforce, he pointed out.
Shared Equity Partnerships
Another way some people get help is through shared equity partnerships, Adde said. This is where “a property investment partner assists in making up a certain percentage of the mortgage through either taking an equity position on a loan or by taking a share on the future increase in the value of the asset.”
This allows buyers to purchase a property without increasing their debt.
“Companies such as Unison and Landed focus on these partnerships, and I have seen clients use them to enter into otherwise very competitive markets where the standard requirement of 20% deposit is unrealistic.”
Crowdfunding and Family Gifting Platforms
Younger buyers are figuring out how to use crowdfunding and family gifting platforms to raise their down payment funds, through sites like HomeFundIt, Adde said.
“These tools enable buyers to create a down payment fund registry,” he explained. “I have personally witnessed that this approach considerably minimizes the saving period for clients who would have otherwise [gone] a couple of years without being able to purchase a home.”
Indeed, according to Zillow’s report, 31% of respondents saved their down payment with gift(s) from family and/or friends and 28% did so with loan(s) from family and/or friends.
VA and USDA Loan Programs
There are also some government lending programs that offer loans with zero money down options through the Veterans Association (VA) and U.S. Department of Agriculture (USDA) home loans, according to Tai Christensen, co-founder and president of affordable housing innovator Arrive Home.
“For VA loans, the borrower must be a member of the U.S. military, a veteran or a surviving spouse, and for USDA loans, you must demonstrate an economic need and live in a designated rural area,” Christensen said.
DPA Programs
If a borrower does not meet the VA or USDA requirements, there are alternate ways they can still access a zero down payment mortgage by using a down payment assistance (DPA) program, Christensen said.
“There are more than 2,000 DPA programs nationwide, and some programs, like Arrive Home, are national DPA providers. A national DPA provider can extend down payment assistance to borrowers living in any state. Most states also offer their own DPA program, and each state has different requirements for qualification.”
Most DPA programs require borrowers to be first-time homebuyers with low to moderate income. They may also require that the borrower have excellent credit and a strong rental history.
Even if a borrower chooses to utilize DPA it is still important to have money in savings for unforeseen expenses. Depleting your savings account and not having reserves turns every unexpected expense into a crisis. Having a good rainy-day fund will help ensure your borrower will be a sustainable homeowner.
Cobuying
Another approach that some buyers are taking, according to Zillow, is to “cobuy,” that is partner with someone else, friend or family, to come up with the necessary funds together. About 37% of respondents in its 2024 survey bought a home together with someone else. Those who bought with a spouse or partner equaled 52%, 7% bought with a friend and 9% with a relative.
Other Income Sources: Retirement Funds, Stocks or Sale of Home
Lastly, according to Zillow, buyers also turned to other income sources to pull their down payment. The largest chunk, 46%, used the proceeds of a sale from a previous home to put up their down payment, another 24% used retirement funds and 23% sold stocks or other investments. Lastly, 54% used two or more of these sources to do so.
While coming up with a 10% to 20% down payment is never simple, following one or more of these strategies may put it in reach.