Perhaps the largest hurdle in becoming a first time homeowner is having the money available to make the down payment. Per a recent survey by Consumer Reports, over 1,500 millennials admitted that they have yet to save enough for a down payment. What these individuals may not know is that major lenders like Fannie Mae and Freddie Mac—responsible for the bulk of the country’s mortgages—have mortgages available that require just three percent down instead of the typical five percent.
The problem with making a small down payment is having to pay for mortgage insurance until the home’s equity reaches twenty percent as well as having to make larger payments every month. There are, however, steps a borrower can take to be able to make a larger down payment.
A tried and true way to boost a down payment is to set up a direct deposit account where tax refunds and a portion of one’s paycheck will directly go. Family members may also be willing to gift funds, and can gift up to $14,000 without having to worry about a gifting tax. Crowdfunding has also gained favor.
Other options include finding a no-interest loan or borrowing from a 401k. What methods have worked for you in building enough money to make the down payment towards becoming a homeowner?