Down Payment Money - How and where to get it?!

Down Payment Money - For most first-time homebuyers, that is probably the biggest hurdle they face in their quest to purchase a home. We know because we've struggled with that ourselves.

The problem is even worse in California where median home prices are now well over $450,000. In the Fresno Clovis area, median prices are about $250,000.

These days, one can easily find a loan program that allows the buyer to put only 10% down. Even at 10% down, the homebuyer will have to come up with $25,000 for a median-priced home in Fresno! That is a lot of money for the average person. How does one come up with the down payment?

Well, here are some ideas for coming up with that elusive down payment money:

• Savings.
This is obvious but if you’re serious in realizing the American Dream in California, you’ll have to save, save, save. Try to reduce unnecessary expense e.g $8/day at Starbucks, expensive dinners, impulsive shopping, etc. Or try to bring lunches to work, cook more, shop during sales, etc. Track your spending for a month and you might be surprised at how much you could save.

One way to track your spending is to use financial software such as Quicken or Microsoft Money. We have been using Quicken for many years now and it is really an effective way to know where your money is going each month. These days, most of your account information (bank, credit cards, etc.) can be downloaded into the software in seconds.

• Research 1st-time Homebuyers Assistance Programs.
Check with lenders regarding down payment assistance programs available for first-time homebuyers. There are state and federal loan programs by California Housing Finance Agency (CalHFA), California Department of Veterans Affairs (Cal-Vet), U.S. Department of Veterans Affairs (VA) and Federal Housing Administration (FHA) to assist first-time homebuyers. The city and county might have some financing programs as well.

Not all lenders can make these loans so look around to find one that does. These government-assisted loans generally have rules limiting the loan amounts, house price and buyer’s income.

Lenders like Bank of America, Wells Fargo, Countrywide, Washington Mutual and Citibank may also have special low down payment loan programs for 1st-time homebuyers. Check out their websites and email or call all of them and ask.

• Borrow from parents, siblings, relative or friend.
Can you possibly borrow part of your down payment money from any of them? Have you asked?

• Borrow from your 401K plan.
Some 401K plans allow you to borrow against it. Check with your employer or plan administrator for more details including minimum loan amount, interest rate, any loan fees, maximum term and what happens if you leave the company before repaying the loan.

• Tap into your IRA.
First-time homebuyers can withdraw up to $10,000 without penalty from an IRA/Rollover IRA to use as down payment money to purchase a primary residence. Contact the IRS for rules and more information.

Unfortunately, there is no magic solution. The real estate prices in California are not likely to drop anytime soon so the situation might become even more frustrating for first-time homebuyers. But please don’t give up!

It might take longer than you had hoped to buy your first home but you will. Continue to save for the down payment and persevere and soon that American Dream will be yours.

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Word of Caution: The information stated on this website is for general information purposes only. The subject of taxation is complicated and should be discussed with your legal tax counsel. We are not tax experts nor do we claim to be. The tax laws change frequently and must be referred to prior to entering into any sales contract. Please consult with your tax specialist before entering into any binding sales contract.