How to Come Up With a Down Payment for a House

Saving for a down payment is one of the biggest hurdles to buying a home. Many lenders require between 3% and 20% upfront, depending on the loan type and credit profile. For many buyers, this means coming up with tens of thousands of dollars before factoring in closing costs or moving expenses.

Fortunately, there are multiple ways to gather the necessary funds beyond just setting aside money from each paycheck.

Personal Budget Adjustments

Reviewing monthly expenses can help free up more money for a down payment. Start by analyzing bank and credit card statements to identify non-essential spending. Subscription services, dining out, and impulse purchases add up quickly. Canceling unused memberships or switching to lower-cost alternatives can make a noticeable difference.

Housing costs are another area to evaluate. Renters can consider downsizing or getting a roommate to reduce expenses. Homeowners may benefit from refinancing their mortgage if interest rates have dropped, lowering monthly payments. Negotiating lower rates on utilities, internet, or insurance policies can also contribute to savings.

High-interest debt can drain income that could go toward a home purchase. Prioritizing repayment of debts with interest rates above 15% can improve cash flow. Balance transfer credit cards or debt consolidation loans may help reduce interest costs, making it easier to save each month.

Borrowing From Retirement Accounts

Using retirement savings for a down payment can provide immediate funds but comes with financial consequences. Those with a 401(k) may have the option to take out a loan against their balance. Many employer-sponsored plans allow participants to borrow up to 50% of their vested balance, with a maximum limit of $50,000. This loan typically requires repayment within five years, with interest paid back into the account. However, if employment ends before repayment, the outstanding balance may be due in full, and any unpaid portion could be treated as an early withdrawal, subject to income taxes and a 10% penalty if the borrower is under 59½.

Another option is withdrawing funds directly from a 401(k) or traditional IRA, though this carries steeper financial implications. Early withdrawals from a 401(k) are taxed as ordinary income and incur a 10% penalty unless an exception applies. IRAs offer slightly more flexibility—first-time homebuyers can withdraw up to $10,000 from a traditional or Roth IRA without the penalty. Roth IRA contributions can always be withdrawn tax-free, but earnings may be subject to taxes if the account has been open for less than five years.

Liquidating Unused Assets

Selling unneeded items can generate extra cash without taking on debt or dipping into long-term savings. Electronics, furniture, collectibles, and jewelry can often be sold through online marketplaces like Facebook Marketplace, eBay, and Craigslist. Luxury goods such as designer handbags or watches may fetch higher returns on specialized platforms like The RealReal or Chrono24.

Vehicles can also be a source of funds. A second car or a recreational vehicle like a boat or motorcycle can be sold to free up thousands of dollars. With used car prices remaining elevated in some markets, selling a vehicle might provide a larger windfall than expected. If public transportation or car-sharing services can meet transportation needs, selling a rarely driven car can also reduce ongoing expenses like insurance and maintenance.

For those with investments outside of retirement accounts, liquidating stocks, bonds, or mutual funds can provide immediate liquidity. Selling appreciated assets may trigger capital gains taxes—short-term gains (on assets held for less than a year) are taxed at ordinary income rates, while long-term gains are subject to a lower rate, ranging from 0% to 20% in 2024 depending on income. Tax-loss harvesting, where underperforming investments are sold to offset gains, can help minimize tax liability.

Assistance Grants

Various grants and forgivable loan programs can provide financial relief without repayment. These programs, often funded by federal, state, and local governments, as well as nonprofit organizations, aim to make homeownership more accessible, particularly for first-time buyers and low-to-moderate-income households. Eligibility criteria typically consider income level, purchase location, and creditworthiness, with some initiatives specifically targeting educators, healthcare workers, and first responders.

Programs like the Federal Home Loan Bank (FHLB) grant programs offer funds to eligible buyers through participating lenders. Many states also administer their own down payment assistance initiatives, such as California’s CalHFA MyHome Assistance Program, which provides deferred-payment loans to cover a percentage of the home price. In certain cities, local governments contribute funds to encourage homeownership in revitalization zones, sometimes offering conditional grants that are forgiven after a set period of occupancy.

Crowdfunding and Gift Funds

For those who may not have enough savings or access to assistance programs, turning to family, friends, or the broader community can be another way to gather funds. Crowdfunding platforms and financial gifts offer alternative sources of capital that don’t require repayment, making them attractive options for buyers looking to bridge the gap between their savings and lender requirements.

Crowdfunding has become an increasingly popular way to raise money for major life expenses, including home purchases. Platforms like GoFundMe and Feather the Nest allow individuals to create campaigns where friends, family, and even strangers can contribute toward their down payment goal. Some buyers use these platforms in conjunction with major life events, such as weddings, by requesting monetary gifts instead of traditional presents. While crowdfunding can be effective, it is important to be transparent about how the funds will be used and consider any potential tax implications. In the U.S., the IRS generally does not tax personal gifts, but if a single donor contributes more than $18,000 in 2024, they may be required to file a gift tax return.

Family members are another common source of financial assistance. Many lenders allow gift funds to be used for a down payment but require a formal gift letter stating that the money is not a loan. Some loan programs, such as FHA loans, have specific rules regarding who can provide gift funds and how they must be documented. Depositing large sums well in advance of applying for a mortgage can help avoid red flags during underwriting. Proper documentation, including bank statements showing the transfer, ensures a smooth approval process.