Explore Down Payment Assistance Programs
Studies show that homeownership benefits communities. Because of this, lenders, local governments, and state programs offer help to qualified buyers with their down payment. These programs are often aimed at first-time buyers with lower incomes, but some are also available for repeat buyers.
In some cases, the assistance is given as a grant. In others, it’s a forgivable loan. With this option, if you stay in the home and make regular payments for a certain number of years, the loan may be forgiven. To find programs in your area, talk to a lender or a REALTOR® who is a member of the National Association of REALTORS®.
Consider Seller Financing or Mortgage Assumption
Seller financing is another way to finance your home. In this arrangement, the seller lets you make payments directly to them, much like a mortgage. Since the terms can vary, it’s a good idea to have a real estate attorney review the agreement.
Another option is mortgage assumption. With bank approval, you can take over the seller’s loan. This is often helpful if the current loan has a lower interest rate than what’s available in the market. FHA, VA, and USDA loans are all assumable, which can be a great choice when the seller isn’t expecting a large payout.
Ask Your Family for Help
You may also get help from family. A relative might be willing to gift you money for a down payment. However, lenders require proof that the money is a gift, not a loan. This ensures the mortgage meets regulations.
If your credit history is limited, a co-signer might be required. If this happens, make sure your family members understand the risks. A co-signer is responsible for the loan if the primary borrower can’t make payments.
Think About Shared-Equity or Shared-Appreciation Agreements
Another option is a shared-equity or shared-appreciation agreement. In this case, a friend, family member, or third party invests in part of the home and shares in the profits when it’s sold. You, the homeowner, will still be responsible for the mortgage, property taxes, and maintenance. Make sure to consult a lawyer to ensure everything is properly structured.
Lease with an Option to Buy
If saving for a down payment is difficult, consider leasing with an option to buy. In this arrangement, you rent the home for a set time—often a year or more—while working toward purchasing it. In some cases, the landlord will apply part of your rent toward the purchase price, helping you build equity as you prepare to buy.
Consider a Short-Term Second Mortgage
If you qualify, a short-term second mortgage may help you make a larger down payment. This option works best if you have a stable income and minimal debt. A bigger down payment could also help you avoid private mortgage insurance (PMI), which is required on conventional loans with less than a 20% down payment. However, be aware that short-term second mortgages can be riskier for both lenders and buyers. Be sure to plan carefully before choosing this option.
