Down Payment Strategies for First-Time Homebuyers

Planning to buy your first home? Chances are, you have plenty of questions running through your mind, including one of the biggest: How much money do I actually need to buy a home?

While your monthly mortgage payment will likely be your largest ongoing housing expense, you'll also need to prepare for your upfront costs, including your down payment.

The good news? Buying your first home may not require as much cash as you think. Depending on the loan program you qualify for, you may have more options than you've realized!

What is a Down Payment?

A down payment is the portion of your home's purchase price that you pay upfront when you buy a home. It's typically expressed as a percentage of the purchase price, while the rest is financed through your mortgage loan.

The amount you'll need depends on the type of loan you choose. Some loan programs require a down payment, while others may allow you to buy a home with little or even no money down.

A down payment helps reduce the lender's risk, but it also benefits you.

Expert Tip

Putting money down means you begin building equity in your home right away. In some cases, a larger down payment may also lower your monthly payment or reduce other loan costs.

Do I Need a 20% Down Payment?

One of the biggest homebuying myths around, still to this day, is that you need to put 20% down to purchase a home.

Yes, while putting 20% down is certainly an option, it's far from the only one allotted to you. Many first-time homebuyers qualify for loan programs that require much less.

Think of it like this: the right down payment is less about reaching a certain percentage and more about finding the loan program that fits your specific financial situation and long-term goals. Not sure what your long-term goals should be? Our team can help with that!

How Much Do I Need to Put Down?

We know, we know. It’s cliche, but today's homebuyers truly do have more financing options than ever before. And depending on your loan program and qualifications, you may be able to purchase a home with a much smaller down payment than you’d ever expected.

Here are several ways buyers make homeownership more affordable.

1. Consider an FHA Loan

A Federal Housing Administration (FHA) loan allows qualified buyers to put down as little as 3.5% of the purchase price. These loans also tend to have more flexible qualification requirements, making them a popular choice for many of the first-time homebuyers we work with.

2. See If You’re Eligible for a VA Loan

If you're an eligible veteran, active-duty servicemember, or qualifying surviving spouse, a VA loan could be one of the best financing options available.

VA loans typically require no down payment and don't require private mortgage insurance (PMI), though they do include a VA funding feeA one-time payment that borrowers make on VA-backed home loans. The fee helps lower the cost of the loan for U.S. taxpayers because the VA doesn’t require down payments or monthly mortgage insurance.VA funding feeA one-time payment that borrowers make on VA-backed home loans. The fee helps lower the cost of the loan for U.S. taxpayers because the VA doesn’t require down payments or monthly mortgage insurance. in most cases.

Our Atlantic Bay team can help you determine whether you meet the eligibility requirements and whether a VA loan is the right fit for you.

3. Accept a Down Payment Gift

If a family member wants to help you purchase your first home, gift funds may be a viable option.

Mortgage guidelines allow gifts for a down payment on many loan programs, provided certain documentation requirements are met. We can help verify that the funds are truly a gift and not a loan that you'll need to repay. It’ll only take a second, too! 

4. Consider Using Retirement Funds Carefully

If you've built enough savings in a retirement account, you may be able to use those funds toward your down payment.

But a word of caution.

In some cases, borrowing from a retirement account may make sense. In others, another strategy may leave you in a stronger financial position. Our team, or a qualified financial advisor, can help you weigh your options. The last thing you’d want to do is hinder your future self.

5. Explore Down Payment Assistance Programs

A lot of first-time buyers are surprised to learn that there are thousands of down payment assistance programs available across the country.

Depending on where you live and your eligibility, these programs may help cover part of your down payment, closing costs, or both. Some assistance comes in the form of grantsUpfront down payment assistance from a government agency or nonprofit that helps you cover your down payment or closing costs and does not have to be repaid.grantsUpfront down payment assistance from a government agency or nonprofit that helps you cover your down payment or closing costs and does not have to be repaid. that don't have to be repaid, while others offer deferred or forgivable loansA second mortgage that covers your upfront costs and is completely canceled, meaning you never have to pay it back, as long as you live in the home as your primary residence for a set number of years.forgivable loansA second mortgage that covers your upfront costs and is completely canceled, meaning you never have to pay it back, as long as you live in the home as your primary residence for a set number of years..

Even if you don't think you'll qualify, it's always worth asking your Mortgage Banker. Trust us. Income limits and program requirements vary, and some programs are available to buyers with moderate incomes or even previous homeowners.

6. Make Saving a Part of Your Homebuying Plan

There are so many ways to build your down payment, but saving consistently is still one of the most effective strategies.

If you're just starting out, try:

• Putting your tax refund directly into savings.

• Setting up automatic weekly or monthly transfers to a dedicated homebuying account.

• Depositing work bonuses into savings.

• Using cash back rewards responsibly and paying your balance in full each month.

• Using a round-up savings app to automatically save spare change.

• Cutting back on a few everyday expenses and redirecting those savings toward your home fund.

Small, consistent contributions add up fast, as you might imagine.

Remember: The Down Payment Isn’t Your Only Upfront Cost

When planning your budget, don't forget that your down payment is only one piece of the puzzle.

You'll also want to prepare for closing costs, prepaid taxesProperty taxes you pay upfront at closing to set up your escrow account, making sure your future tax bills are fully covered and paid on time without you having to stress about them.prepaid taxesProperty taxes you pay upfront at closing to set up your escrow account, making sure your future tax bills are fully covered and paid on time without you having to stress about them. and homeowners insurance, and other expenses associated with purchasing your home (just ask us for more).

Expert Tip

Some of these costs may be reduced through seller concessions, lender credits, or down payment assistance programs, depending on your loan and purchase agreement.

The Best Strategy May Be a Combination of Options

Most buyers don't rely on just one down payment strategy.

For example, you might combine your personal savings with gift funds from family and qualify for a down payment assistance program. Or you may choose a loan program with a lower down payment requirement so you can keep more money in your emergency savings after closing.

Every buyer's situation is different (nobody knows that better than us), which is why it's helpful to explore your options before you start shopping for homes.

Time to Find Out What’s Possible?

You don't have to wait until you've saved a certain amount to talk with a lender.

In fact, meeting with a mortgage professional early can help you understand how much you may need for a down payment, what loan programs you qualify for, and whether there are assistance programs available that could help you buy sooner than you expected.

The sooner you start the conversation, the sooner you'll have a personalized plan for getting into your first home. So, with all that said, let's explore your options together!