How to Build a Down Payment for a Home

• Author: Jennifer Kloss
• Posted: 2024-02-09

Having a large down payment is a great way to reduce the cost of home ownership over time. Not only will you save by borrowing less, but you may be able to avoid paying PMI, or private mortgage insurance.
 

1. Check Your Budget for Items You Can Pay Off

There are infinite payments we all face, such as rent and utilities. There are also payments that have an end date, such a monthly car payment. Take a look at your budget for items that you can pay off and put extra monies on those debts.

For example, if you've got $5,000 left on a car payment, consider picking up a part-time job and dumping all that extra income just on the car payment. Once the car is paid for, roll the former payment into savings toward your down payment. You can now quit the extra job, or roll that income toward the next finite payment.
 

2. Look for Down Payment Match Programs

If you have a down payment started, ask your bank if it offers a down payment match. These matches are offered by some banks, government agencies and some community organizations. Should you fail to find a local bank that offers a match, a community organization may be able to help, though you may need to buy a home in a particular region.

Be aware that a down payment match application is different than qualifying for a mortgage. It may take more time to close on your home if you use a matching program.
 

3. See if You Qualify for First Time Homebuyer Programs

If you've never owned a home or have not owned a home for 3 years, you may qualify for first time homebuyer's assistance. Be prepared for a lot of paperwork. You may also need to take a class to help you prepare for home ownership.
 

Work On Your Credit Rating

Your chances of getting into a down payment assistance program will be more successful if you can keep your credit rating as high as possible. It will also reduce what you have to spend on car insurance, reducing your monthly bills even more.

There are simple steps you can take to protect your credit rating.

• As soon as bills arrive, pay at least the minimum.


• If you want to pay more after your next payday, do so.


• Credit card users should try to keep their card usage at 30% or under.


 

One maxed credit card may actually be less overall debt, but your credit rating will be negatively impacted by limited borrowing power. If you have 3 cards, rotate their use to keep one from maxing out.

If you've got collections on your credit record that are still within the statute, reach out to the debtholder and ask if they can help you create a payment plan. Be diligent about wiping out those debts.
 

Work With Your Current Landlord

There are many older folks who own rental property that are feeling the strain. If your landlord is older and is struggling to make repairs and updates on your property, ask them if they'd be interested in selling it to you.

Setting up a lease-option with your current landlord gives you a lot of flexibility. You can set up a lease with your landlord that gives you the chance to buy at the close of the lease. It doesn't require you to buy at the close of the lease.

If you set up a 2 year lease with the option to buy at the end and you know what the selling price will be, you have a great deal of information that can help you out. You will know how much of a down payment you have to come up with. No matter what the market does in the next 2 years, you'll have a locked in offer. If you choose not to buy, you can move with no repercussions.
 

Bottom Line

There are programs that will match what you have saved for a down payment. If saving is a challenge for you, there are ways to move your monthly payments from debts into saving. Working with your current landlord could help you lock in a sale price in a wild real estate market.