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You have dreams of picket fences and two car garages - or at least a cute studio apartment that is all yours. But home ownership is expensive and buying a new home requires a lot of money upfront for things like your down payment, closing costs, and moving expenses.

So, should you put off buying a home or resign yourself to the fact that you'll probably never be able to afford one? Not at all! In fact, with some creative strategies to save for your down payment, you could end up in your dream home faster than you would ever expect.

Here are some tips to help you save for your down payment:

Set up an automatic savings account

If you're like most people, you spend money and then see what you have left at the end of the month to transfer to your savings account. But often there isn't much left in there. That's why if you're serious about saving for a down payment, you should switch up the way you do things.

Set up an automatic deposit into your savings account right after you get your paycheck and then budget accordingly. That will ensure that the money you're wanting to save for a down payment doesn't get spent mid-month on a new big screen TV or on a fancy night out with your partner.

How much should you automatically save? If you have a timeline for buying your dream home, work backward and figure out how much you would have to put away each month to reach your goal.

Get a personal loan to finance all or part of a down payment

What happens if you find the perfect home for you and you don’t currently have all the funds you need for your down payment? Should you wait and risk the home getting scooped up right out from under you? Beg your parents or other family members for loans? Submit a low ball offer that’s likely to get rejected?

One option you might not have considered is using a personal loan to help you finance all or part of your down payment. The challenge is that it will only work for certain people. As stated by, this is because taking on new debt will alter your credit score and debt-to-income ratio and that could cause you to no longer qualify for a mortgage or to qualify for a lower rate or to borrow less.

There are a few ways that borrowing money for a down payment can affect you. First, applying for a new loan will show up as a credit inquiry on your file which will cause your credit score to go down. Also, it will change how much debt you’re servicing compared to your income. Most mortgage lenders require that your total monthly debt payments be less than 43% of your income. If your loan for a down payment pushes you over the top, then you will struggle to qualify for a mortgage.

However, if you need just a little more money in order to qualify for a mortgage, and you have a significant enough income that borrowing more won’t affect your debt-to-income ratio, then borrowing via a personal loan to make sure you have enough for a down payment could be a great idea. You can also later refinance your personal loan into a home equity line of credit to potentially get a better rate if your home appreciates in value.

Using your 401(k) to finance your down payment

Still need cash to finance your down payment? You might be able to get a loan from your 401(k) to use towards buying a home. As stated by the, you can borrow up to 50% of the balance of your 401(k) account or up to $50,000. You can borrow this money without interest and without penalty – so long as you pay it back in 5 years.

If you fail to pay it back, you will face a 10% penalty on the amount that you borrowed since it will be taxed as income. You’ll also have to start making payments on your 401(k) loan, and if you fail to do so for 90 days, then you will be taxed. If you’re let go of your job, you must also repay the loan in 60 days or face financial penalties. Also, it’s important to note that not all 401(k) providers offer an option to take a loan from your 401(k).

Still, if you work for a company that allows you to take out money from your 401(k), it could be just what you need to ensure you have enough for your down payment on your dream home.

Being creative pays off

When it comes to finding the money for your down payment on a home, remember that it pays to think out of the box. If you use these creative down payment strategies, you’re likely to be waking up in your dream home in no time.


Luke Babich

Luke Babich is the co-founder and Chief Strategy Officer of Clever Real Estate, the free online service that connects you with top agents to save money on commission. He's an active real estate investor and licensed agent in St. Louis, with 22 units currently. Luke graduated from Stanford University and subsequently ran a historic data-driven campaign for University City City Council. Luke's writing has been featured in Homeland Security Today, Mashvisor, Payments Journal, and Bigger Pockets.

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