Jul 19 2022

6 ways to fund your down payment

Do you need help with a down payment? Here's how to achieve your dream of homeownership—fast.

The down payment for your next home may be more attainable than you thought. Don’t let the myths mislead you. Thankfully, there are more than a few ways to keep your down payment affordable.

First, let’s start by setting the record straight on five mainstream down payment myths:

  1. Myth: You must put 20-percent down. Fact: These days, the typical down payment amount for first-time homebuyers is as low as 7 percent.
  2. Myth: Your down payment has to be all your own money. Fact: You may have more flexibility than you think; down payment gift funds from family, grants/DPA (down payment assistance), and employer assistance may all be accepted.
  3. Myth: DPA is only for first-time homebuyers. Fact: A first-time buyer is actually defined as someone who hasn’t owned in the past three years (or a single parent who only owned a home with a former spouse). More than 38 percent of DPA programs also extend to repeat buyers.
  4. Myth: DPA is only available in big cities. Fact: Down payment and homebuyer assistance programs are available in small and large communities.
  5. Myth: Down payments are always required. Fact: VA and USDA Loans have 0 percent down payment requirements for eligible buyers. Ask your Academy Mortgage Loan Officer for details.

Saving made simple: Contact a local Loan Officer to discuss which low and no down payment loans you might qualify for.

6 strategies to conquer your down payment

Consider one or more of these strategies to keep your down payment as affordable as possible:

1. Down payment assistance.

Did you know that thousands of DPA programs exist, created for the sole purpose of making it easier to buy a house? Down payment assistance is typically offered locally and may come in the form of a loan or grant that doesn’t have to be paid back. If you qualify for a grant, that money may be able to go toward closing costs too.

Once you pre-qualify*, your Academy Mortgage Loan Officer can give you insight into which local programs may be available. Note that Veterans and active duty servicemembers may be eligible for specialty DPA programs in some states, with up to $10,000 in assistance available.

Another opportunity to save: While the Mortgage Credit Certificate (MCC) doesn’t reduce your down payment, it’s a dollar‐for‐dollar tax credit that’s stackable with down payment assistance.

Using the MCC, you could claim a tax credit of up to $2,000 a year for a portion of your paid mortgage interest, helping to decrease federal taxes owed and increase your refund. The MCC is ideal for lower-income buyers: Ask your Academy Mortgage Loan Officer if you’re eligible.

2. Low/no down payment loans.

VA, FHA, and USDA loans, as well as some conventional loans, can lower your down payment—for those who qualify—to anywhere between 0 to 3.5 percent. This is far below the oft-referenced 20 percent. The exact percentage will depend on the loan you qualify for and, in some cases, your credit.

Academy Mortgage has 10 different loan programs that require no down payment or down payments as low as 3.5 percent. All of these loan products also allow gift funds from family.

3. Gift funds.

Whether it’s college graduation gift money or funds from the passing of a distant relative, that cash can be invested in a down payment. Loved ones who want to help you save up for a house can also gift up to $16,000 without taking a tax hit. Gifted money requires a gift letter from the giver, needed to disclose where the funds came from to your Loan Officer.

4. Tax refund.

Another common influx of cash that can be easily channeled toward a home purchase without drawing penalties is your tax refund. Consider putting it down on a house. The average tax refund is currently $3,039. Depending on the loan program you choose, this could cover a significant portion of your down payment.

5. Crowdfunding.

Crowdfunding isn’t just for a start-up or small business. It can be used to help you save up for a new house too. Feather The Nest is one option that’s similar to a gift registry and strongly targeted toward engaged couples and newlyweds. While there is a 5-percent transaction fee per gift, some users report being able to crowdfund almost all of their down payment.

6. Work on your credit.

If you’re using a conventional loan—versus a low or no down payment government-insured loan—you’ll be required to pay private mortgage insurance (PMI) when putting less than 20-percent down. This insurance can be added to your closing costs or to your monthly payment, which is more common. The cost of PMI does depend on credit health; it can significantly increase with average or below-average credit scores in the 600s.

Meet with your Academy Mortgage Loan Officer to figure out if there are a few simple ways to strengthen your credit before you purchase. Doing this can tell you exactly how much your score needs to increase, if at all, to make you eligible for a more competitive monthly PMI premium. Added bonus: Improving your credit score may also help lower your mortgage rate and monthly payment.

One down payment does not fit all.

Just as your mortgage needs to be customized to your unique needs, so does your down payment. Reach out to an Academy Mortgage Loan Officer for a personalized assessment: We can help you decide on a down payment amount you feel good about.

*Pre-qualification is not a commitment to lend. This blog is intended for educational purposes only. Please consult a trusted professional as personal circumstances may vary. Please consult a tax professional about your specific situation and the tax savings benefits of homeownership. MAC523-1481378.