Down payments are directly linked to the price of houses. So when prices reach the levels we’ve seen in recent years, deposits also increase.
The typical down payment — 7% of a home’s purchase price — now sits at $27,400, according to the Harvard Joint Center for Housing Studies. That’s a big chunk of change for all but the wealthiest Americans. For the average renter — who only has $1,500 in savings, according to Harvard — that can be an insurmountable sum.
As a result, today’s homebuyers are creatively accumulating down payments. They trade their marriage records for “new house” crowdfunding campaigns. They sell everything from cars to cryptos. Some even ask the previous owners of the house for help.
“As down payment requirements increase, so does buyer creativity,” says Robert Esposito, Director of Sales at RelatedISG Realty.
1. Vendor Financing
If you’re a savvy negotiator (or, perhaps, you’re buying a home from a family member or friend), seller financing might be an avenue to explore. In this scenario, the former owner of the house acts as both the seller and the lender — so instead of paying your mortgage to a bank each month, you make payments to them directly, at an agreed interest rate.
“If the buyer is good at negotiating, they may actually get a down payment taken away with maybe a slightly higher interest rate or some other concession,” says Ryan David of We Buy Houses in Pennsylvania.
This will require a little more handling and negotiation than your typical home purchase. But in the end, it could work in favor of both sides, according to David.
“The seller makes more money over time,” he says. “They also spread their earnings … by reducing the taxable income they pay.”
Buyers, in turn, have more control over the terms of their loans. They also benefit from a less strict loan process.
“This opens the floodgates to a lot of other buyers who don’t have enough credit to qualify for a loan or the upfront money to put down for the down payment,” says David. “Every detail of the transaction is open for negotiation.”
2. Sell stocks, cryptos and other things
These days, many buyers sell personal items to pay a deposit. Some chose handbags or fancy watches; others are taking advantage of the skyrocketing demand for used cars.
Money with Nira host Munira Sabzalieva recently sold her 2004 Honda Accord for $5,000, which is close to what she paid four years ago. “It sold out the same day I posted it on Craigslist,” she says.
Some buyers, including Sabzalieva, are selling stocks, bonds, and crypto holdings to generate cash for their installments.
Keep in mind, however, that the stock market is volatile. If you are unfamiliar with the ins and outs of the market, consult a professional before offloading your investments.
“When I sold, stocks were high and mortgages were low,” says Sabzalieva. “Buyers have to be very strategic about this.”
3. Down Payment Assistance Programs
If you’re a first-time buyer or have a low to moderate income, down payment assistance programs are another option.
The amount of money you can apply for varies, but many programs cover some or all of your down payment. Some also go towards closing costs.
This type of assistance is typically offered by cities, counties, and state housing agencies through a second mortgage. In many cases, you will have to repay the money monthly, with interest, like your first mortgage. Others don’t require repayment until you sell or refinance.
Some down payment assistance programs are grants, which never need to be repaid. Houston’s “Home Sweet Texas” program, for example, offers buyers up to 5% of their down payment. If they stay in the house for at least three years, they can keep the money.
If there are no down payment programs in your area, you can also look to local mortgage lenders for options. Many offer their own programs exclusive to first-time home buyers.
4. Non-traditional financing
Today’s homebuyers are also using some non-traditional financing options to help pay their down payment.
A crypto-backed mortgage, which allows people to leverage their holdings of Bitcoin, Ethereum, and other cryptocurrencies, is one such option. The idea – which, in full disclosure, comes with notable risks – works like a traditional mortgage, but instead of borrowing against the value of your home, you’re borrowing against your crypto holdings. Companies like Milo, Figure, and Ledn specialize in this space.
Piggyback loans are another option. With this strategy, you take out one loan for most of the purchase price of your home, then a second, smaller loan to cover some or all of the down payment.
“We see a lot of consumers doing what’s called an 80-10-10,” says Bret Weinstein, CEO of Guide Real Estate. “They get two loans — one at 80%, a second at 10% from a credit union or a small bank — and the rest is their 10% down payment.”
Layered loans have been around longer than crypto loans, but that doesn’t make them inherently safe. In fact, some experts say these loans played a big role in the 2008 housing crash.
Buyers can also use a home equity sharing program to build their down payment.
These involve giving a company (they call themselves “co-investors”) a cut in the value of your home in exchange for money. There are no monthly payments or interest, and you pay off the loan — plus the agreed-upon percentage of the appreciation value — when you sell or refinance or at the end of your 10-30 year term. Be warned: if your home’s value increases significantly during this time, much of that potential wealth will go to the investor rather than your bank account. If it loses value, the investor will also benefit.
Companies that offer these types of arrangements include Point, EquiFi, and Landed.
5. Tap your friends and family
Borrowing money from a family member is a (very common) way to make a down payment. But not everyone has a wealthy aunt or grandfather who can help.
For those who don’t, crowdfunding is an option. There are even crowdfunding platforms designed specifically for this purpose, such as Feather the Nest and HomeFundIt.
For added momentum, you can even use an upcoming event — like a wedding or birthday party — to steer people towards the fund, says Dan Demian, senior financial adviser at Albert.
“Your guests and their friends can contribute to this instead of a registry or traditional giveaways,” he says.
If you’re interested in going this route, be sure to check with your mortgage lender first. Donation funds are generally allowed for installments, but there may be limits on who can contribute and how these funds must be documented.
“Donor requirements vary by mortgage program,” says Dan Dadoun, vice president of sales at Silverton Mortgage. “So you would need to know what loan you qualify for before trying this approach.”
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