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Breaking Down Your Down Payment

Posted by The Tom and Joanne Team on July 22, 2015

Buying a house is a huge commitment that requires careful analysis and consideration.

One of the biggest ways to impact your future home payments is by having a substantial down payment.  An infusion of cash up front can: dramatically reduce your loan rates for your new home, increase the amount of house that you can afford, and sometimes can even affect whether you can get a loan!  Having a substantial amount of money available at the beginning can be a barrier for many buyers.  Here are a few ways to help get a solid down payment and start off on the right path of homeownership!


The best way to deal with a down payment is to not need a down payment to begin with!  MassHousing mortgages are designed to increase affordable homeownership for Massachusetts residents with modest incomes.  MassHousing mortgages can provide up to 97% financing, so the borrower would only need a 3% down payment.  There are additional advantages and requirements that can vary depending on the borrower and the location.  Check with a mortgage professional to see if and how you qualify!


This may seem obvious or impossible, but look into applying your talents and times outside of your regular 9-5.  “No matter how mundane or insignificant your talents seem, there are other people out there who don’t have those talents — and they might be willing to pay you for your skills,” said Forbes.  Odds are there is something that you are good at doing, so think about applying those skills in creative ways and use sites like Etsy, eBay, or other services.  In an increasingly “gig” oriented world (think Uber) it is becoming easier and easier to pick up extra work on your own schedule.


Most parents want to help their children to get a good start in the world, and this can be especially important when buying a home.  Parents can provide up to $13,000 per year to their children without having to pay a gift tax.  Other family members or friends can also provide loans, but you will need to create specific terms for repayment and be sure to document everything thoroughly to avoid complications with your taxes.

IRA or 401k

If you have never owned a home before you can use up to $10,000 in IRA funds as a down payment.  This maximum doubles if you are married.  While there isn’t a penalty for early withdrawals of funds you should check with your financial advisor to make sure there are no tax implications.

You can also use 50% of the money from your 401k up to a maximum of $50,000, but this amount is considered a loan and must be repaid.  These loans don’t have to be approved by the bank and might result in lower interest rates than standard loans.

VA Loans

If you are a veteran or currently serving then you may be able to get a loan from the U.S. Department of Veteran Affairs that has a zero down payment.  The VA offers an entitlement of $36,000 to every eligible veteran and will generally loan up to 4 times the available entitlement without a down payment.  Additional restrictions might apply depending on income, credit, appraisal and other criteria.


Probably the least glamorous of all these options, putting money away on a regular basis is the best way to build for the investment in your new home.  Take stock of your daily purchases and think about what you can live without.  Take your lunch instead of buying it.  Bring coffee from home instead of that large double mocha half cap.  Cut the cord on cable and get an antenna or read a book!  Take whatever money you would normally spend, even if it’s small, and put it away into an account specifically for your new home.  Remember your goal and you might be surprised at how much you can save!

There are many advantages to having a large down payment, but no magical way to make the money appear.  Investigating your options and preparing in advance will help make sure you have the maximum amount ready to put down on your dream house!

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