You’re the type of person that mortgage lenders talk about when they describe their dream applicants.
You have a solid career. Your credit score is off the charts or pretty darn close. And your debt-to-income ratio is impeccable.
But there’s just one thing standing in the way of your home owning dreams:
You never got around to saving up for a down payment.
Or maybe you did, but you’d like to put those dollars towards other expenses if you can.
Sure, you could budget and save up over time. But is that your only option?
Whether you’re trying to top up your savings or you’re starting from scratch, here are 4 financial hacks that could take you from house-hunting to home owning even without the full down payment.
Method #1: Borrow the Down Payment Amount
Nobody would blame you for looking at this suggestion and thinking, “I don’t have a Bank of Mom and Dad or a Bank of Rich Friends to borrow from.”
And that’s perfectly fair.
But did you know that you can take out a line of credit or a personal loan for the amount of your down payment?
To be clear, this approach isn’t without its pitfalls. It isn’t really ideal for someone who’s stretched financially thin, for instance. But if you can afford to make payments on both your mortgage and your line of credit, then this could be a quick and easy way to jump in front of the line.
Method #2: Take the Money Out of Your 401(k)
If you come from a “401(k)s are for retirement only.” school of financial management, this one might come as a surprise to you.
But if you’re really in a hurry and you’re trying to avoid taking out a line of credit ahead of your mortgage application, you may have enough saved up in your 401(k) to get the money you need.
CNBC observes that for many homebuying hopefuls, this can be a fast way to get down payment funds in time to take advantage of the Federal Reserve’s historically low interest rates. However, if you consider going this route, it’s important to make sure that you’re aware of both the tax implications involved with taking money out of your 401(k) as well as any early withdrawal penalties you may be facing. But as far as interest-free loans go,
Method #3: Consider a Zero Down Payment Option
For many people, the words “down payment” bring to mind images of a lump sum you save or borrow upfront. The problem with this is that it doesn’t leave a lot of room for picturing what it would be like to do away with the down payment altogether.
Two ways you can do that are through rent-to-own agreements and USDA-backed loans.
Investopedia does a really good job of explaining the finer nuances of the rent-to-own process. But the gist of it is that you essentially take out a lease and rent a home for a set period of time. Then, when the lease is over, you can purchase the house.
Both of these strategies have their strong points and weak points. The USDA, for instance, has income eligibility requirements. And in the case of a rent-to-own agreement, you could find yourself paying above-market rates for a few years before you take formal ownership of the property.
However, if you want options that don’t involve taking on more debt or pulling money out of your retirement early, a zero down payment purchase has a lot to recommend it.
Method #4: Use Your Tax Return
This one largely depends on how much time you have.
But if you’re planning for your home purchase in terms of a few months to a year, your tax return is the perfect opportunity for you to top up your down payment fund or otherwise up your savings.
In fact, depending on when the deadlines are, you may even be able to do a quick audit for credits you haven’t claimed or tax deductions you didn’t realize you had. While a lot of people tend to think of tax returns as something the IRS calculates on your behalf, there may be opportunities for a larger return that you could be overlooking.
Even for Americans who are making good money in good jobs, a down payment is a significant chunk of change.
But just because you might not have everything you need for a down payment yet, that doesn’t mean that your homeownership journey has to come to an end.
To that end, we’ve just listed 4 ways that you can purchase a home even if you don’t have the down payment sitting in your bank account. Which option could you see yourself using right now?