How to Find a Down Payment to Buy a Home

Two women having garage sale
••• Deborah Jaffe/The Image Bank/Getty Images

A 20 percent down payment is considered the optimum amount by many lenders. However, few people have that much cash available to them, and you can get away with much less. Federal Housing Administration loans, for example, require only 3.5 percent down.

Coming up with a big enough down payment is achievable if you take the right steps to tap your own income or find new sources of money.

Save Your Tax Refund

If it's hard for you to save, you can change your federal income tax withholding exemption from 1 to zero. Doing so will require your employer to pay more of your paycheck to the Internal Revenue Service and is likely to result in a fat income tax refund for you. Even a regular tax income refund, however, might be enough to help you buy a home.

Borrow From Parents

It's not unusual to ask your parents for money to help you buy a home. Favorable tax laws will let each parent give you a certain amount as a gift without tax consequences. Check with your accountant to determine those amounts.

Sock Away a Set Amount Periodically

The secret to making a savings account grow is to make identical deposits at the same time every month. You can arrange for a certain amount of your paycheck to be direct deposited into your savings account or transferred from your checking account to your savings account every pay period. For example, if you are paid every two weeks and save $200 from every paycheck, at the end of 12 months, you will have saved $5,200, excluding interest.

Ask the Seller to Give It to You

Hey, you never know. If you pay the seller's asking price, you'd be astonished at what some sellers will do for you. Some of them will even give you the down payment as a credit or pay your closing costs or both. Check with your lender before asking for assistance from the seller because lenders have strict requirements as to how big a credit you can receive.

Check Out Government Programs

If you've served your country in the armed forces, you may qualify for a loan backed by the U.S. Department of Veterans Affairs, known as a VA loan. The government also runs a slew of down payment assistance programs for first-time home buyers. Also, check with your county to see if it offers special programs to encourage homeownership in certain neighborhoods.

Tap Your Retirement Funds

Certain retirement accounts will let you borrow from them to buy a home. Check with your accountant for current regulations. Some types of retirement accounts will let you take out the principal balance without a penalty.

Consider 100% Financing

If you have excellent credit, you may qualify for a 100 percent loan, provided your community offers special first-time home buyer programs. This could be a single mortgage backed by mortgage insurance. Or you may qualify for a silent second mortgage that's due when you sell. Talk to your mortgage broker to see which programs may be available for you.