Coming up with a down payment is one of the biggest roadblocks to homeownership — but you don't need help from relatives or friends. Here's how to help yourself buy a house.
On the highway to homeownership, coming up with a sufficient down payment continues to be one of the biggest roadblocks. In fact, many prospective home buyers, particularly first-timers, find it hard to overcome this challenge without the kindness of loved ones.
Among recent home buyers age 28 and younger (who are more likely to be first-time home buyers), 28% got down payment help from a relative or friend, according to a 2019 report from the National Association of Realtors. With home buyers ages 29 to 38, 21% relied on down payment gifts.
But turning on the family money faucet isn’t an option for everyone. And not all home buyers have friends with spare cash to contribute. That’s OK; you can help yourself buy a house. Here’s how:
1 Coddle Your Credit Score
A higher credit score is the key that unlocks low-down-payment mortgage options, down payment assistance programs (more about those below), and attractive mortgage interest rates. Credit scores aren’t based on how much money you make, but how you manage the money and debts you have.
How to do it: Check your credit report often and fix any errors, keep your credit card balances low and pay them off when you can, and avoid late bill payments like the plague.
2 Seek Out Low-Down-Payment Loans
Many people think you need a 20% down payment to buy a house — but they’re wrong. Qualified buyers can get a conventional loan with a down payment as low as 3%, an FHA loan with 3.5% down, or VA and USDA loans with no down payment at all. Lower down payment requirements can reduce the amount of time needed to gather sufficient funds, which means you may be closer to your housewarming party than you think.
How to do it: Contact lenders that specialize in low- and no-down-payment mortgages, to get a list of qualification requirements. If you’re not ready now, ask what you can do to get ready.
3 Take Advantage of Down Payment Assistance
Nearly every state offers a down payment assistance program for first-time home buyers. Some city and county governments offer assistance as well. These programs may provide grants (read: free money), as well as zero-interest forgivable or deferred-payment loans you can use as a down payment. These programs often have income limits and credit score requirements, and they may require you to complete a home buyer education class.
How to do it: Investigate first-time home buyer programs in your state. Read over the eligibility requirements for down payment assistance. If you have questions, talk to a participating lender or contact the agency directly.
Beth Buczynski is a writer at NerdWallet. Email: bbuczynski@nerdwallet.com. Twitter: @bethbuczynski.
The article How to Buy a House Without Help From Your Family originally appeared on NerdWallet.
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Frequently Asked Questions
Can I buy a house without help from family or friends?
Yes. While many first-time buyers rely on a relative or friend for down payment help, it isn't an option for everyone. You can help yourself buy a house by improving your credit score, seeking out low-down-payment loans, and taking advantage of down payment assistance programs offered by states and local governments.
Do I really need a 20% down payment to buy a house?
No. Many people think you need 20% down, but they're wrong. Qualified buyers can get a conventional loan with a down payment as low as 3%, an FHA loan with 3.5% down, or VA and USDA loans with no down payment at all. Lower requirements reduce the time needed to gather funds.
Why does my credit score matter when buying a home?
A higher credit score is the key that unlocks low-down-payment mortgage options, down payment assistance programs, and attractive mortgage interest rates. Credit scores aren't based on how much money you make, but on how you manage the money and debts you have. Check your report often, fix errors, keep balances low, and avoid late payments.
What is down payment assistance and who offers it?
Nearly every state offers a down payment assistance program for first-time home buyers, and some city and county governments offer assistance as well. These programs may provide grants (free money) as well as zero-interest forgivable or deferred-payment loans you can use as a down payment.
Do down payment assistance programs have requirements?
Yes. These programs often have income limits and credit score requirements, and they may require you to complete a home buyer education class. Investigate first-time home buyer programs in your state, read over the eligibility requirements, and talk to a participating lender or contact the agency directly with questions.
