Down payments are directly tied to home prices. So when prices rise to the levels we’ve seen in recent years, down payments surge too.
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 hefty chunk of change for all but the wealthiest Americans. For the average renter — who has just $1,500 in savings, according to Harvard — it can be an insurmountable sum.
As a result, today's homebuyers are drumming up down payments in creative ways. They're swapping their wedding registries for "new house" crowdfunding campaigns. They're selling everything from cars to crypto. Some are even asking the home's previous owners for help.
“When down payment requirements increase, so does the buyer’s creativity,” says Robert Esposito, director of sales at RelatedISG Realty.
1. Seller financing
If you’re a shrewd negotiator (or, perhaps, buying a house from a family member or a friend) seller financing might be a route to explore. In this scenario, the home's previous owner acts as both the seller and the lender — so instead of paying your mortgage to a bank each month, you make payments directly to them, at an agreed-upon interest rate.
“If the buyer is good at negotiation, they can actually have a down payment waived for perhaps a slightly higher interest rate or some other concession," says Ryan David of We Buy Houses in Pennsylvania.
This will require a little more wheeling and dealing than your typical home purchase. But in the end, it could work out in both parties' favor, according to David.
“The seller gets more money over time,” he says. “They also spread out their gains ... reducing the taxable income they pay."
Buyers, in turn, get more control over their loan terms. They also enjoy a less stringent loan process.
“It opens the floodgates to vast amounts of other buyers who don't have high enough credit to qualify for a loan or the money upfront to put down for the down payment,” David says. "Every detail of the transaction is open to negotiation."
2. Selling stocks, crypto and other stuff
Lots of homebuyers nowadays are selling personal items to pay for a down payment. Some chose handbags or fancy watches; others are taking advantage of the sky-high demand for used cars.
Munira Sabzalieva, host of Money with Nira, recently sold her 2004 Honda Accord for $5,000, which is close to what she paid for it four years ago. “It sold the same day I posted it on Craigslist," she says.
Some buyers, Sabzalieva included, are selling stocks, bonds and crypto holdings to generate cash for their down payments.
Keep in mind, though, that the stock market is volatile. If you’re not well-versed in the ins and outs of the market, consult a professional before offloading your investments.
“When I sold, stocks were at their highs, and mortgages were at lows," Sabzalieva says. "Buyers have to be very strategic about it.”
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 part —if not all— of your down payment. Some go towards closing costs, too.
This type of assistance is typically offered by cities, counties and state housing agencies via a second mortgage loan. In many cases, you'll have to pay the money back 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 don't ever need to be repaid. Houston's “Home Sweet Texas” program, for instance, gives buyers up to 5% of their down payment. If they stay in the home for at least three years, they get to keep the money.
If there aren’t down payment programs in your area, you can also look to local mortgage lenders for options. Many offer their own proprietary programs to first-time homebuyers.
4. Non-traditional financing
Today's home buyers are also tapping some non-traditional financing options to help pay for their down payments.
A crypto-backed mortgage, which allows people to leverage their Bitcoin, Ethereum and other cryptocurrency holdings, is one such option. The idea — which, full disclosure, has some notable risks — works like a traditional mortgage, but instead of borrowing against the value of your house, you borrow 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 a loan for the bulk of your home's purchase price, and then a second, smaller loan to cover part or all of the down payment.
“We see a lot of consumers doing what is called a 80-10-10,” says Bret Weinstein, CEO of Guide Real Estate. “They get two loans — one for 80%, a second for 10% from a credit union or smaller bank — and then the rest is their 10% down payment.”
Piggyback loans have been around for longer than crypto-backed loans, but that doesn't make them inherently safe. In fact, some experts say these loans played a big role in the housing crash of 2008.
Buyers can also use a home equity sharing program to come up with their down payment.
These involve giving a company (they call themselves “co-investors”) a cut of your home's value in exchange for cash. There's no monthly payment or interest, and you pay the loan back — plus the agreed-upon percentage of the appreciation value — when you sell or refinance or at the end of your 10- to 30- year term. Be forewarned: if your home's value goes up significantly during that time, much of that would-be wealth will go to the investor rather than your bank account. If it loses value, though, the investor will share in that, too.
Companies that offer these types of arrangements include Point, EquiFi and Landed.
5. Tapping friends and family
Borrowing cash from a family member is one (super common) means of affording a down payment. But not everyone has a rich aunt or grandfather who can help out.
For those who don’t, crowdfunding is an option. There are even crowdfunding platforms designed just for this purpose — like Feather the Nest and HomeFundIt.
For extra oomph, you can even use an upcoming event — like a wedding or birthday party — to point people toward the fund, says Dan Demian, a senior financial advisor at Albert.
“Your guests and their friends can contribute to that instead of a registry or traditional gifts," he says.
If you're interested in going this route, make sure to check with your mortgage lender first. Gift funds are typically allowed for down payments, but there may be limits on who can contribute and how those 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 that approach.”