What to do if you don’t have enough money saved for down payment?

77 Replies

I’m just starting out and I was trying to get a preapproval letter so that I could know what price range to start looking in. I was told that I should save up $10,000 before I even consider getting a preapproval letter but that would take me years. I would love to buy my first property by May but how do I come up with that kind of money? Should I try to look for a partner that would contribute the capital or what do I do? It was discouraging to hear that so any and ALL advice would be great!!!!

How will you pay for closing costs? How will you make repairs to the property? Many issues that pop up when you purchase a home, even if its "move in ready." Don't purchase a home unless you have down payment PLUS an emergency fund.

If this is an investment property you can bring in a partner who may bring more money than you, but between you both you should have that down payment plus emergency fund. Its NEVER a good idea to buy a property if it'll leave you drained of cash.

You can find a partner and divide up the roles. For example that person can help put up the money while you handle the daily operations. 

Thanks @Andrew B and @Tony Lin . That makes a lot of sense. So should i just put my investing goals on hold until i can save up that type of money? Do some loans cover downpayment and/or repairs? Is is possible to get the money from a lender if i don't have it all saved up? Basically I guess my question is are there other ways to raise the money for the down payment and repairs if i don't have the money saved up?

Many people find that they need to live very frugally to save up enough cash to start a real estate investment endeavor. There's lots of "no cash required" mantras around but all real estate requires money and usually lots of it. If you can use someone else's cash that may be a solution but the tried and true method is to save up. If you have a decent job, then it shouldn't take years to save up $10,000. Bring your lunch, don't eat out and cook at home, drive a cheaper car, buy your clothes at a thrift shop or yard sale, make your own coffee instead of stopping for a cup, make sure you're not paying interest on consumer credit, etc etc.

A 100k loan @3.5% down is 3.5k.  Are there properties in your area 100k or under?

Don't put yourself in a position where you buy a house, but have zero dollars in savings to cover say a broken water heater or leaky sewer pipe.  Trust me I have done that and all it does is make it extremely stressful.  If all you have is enough for a downpayment I would suggest getting a little more to set aside for an emergency.  My house passed inspection.  My first year I put in over 3k in repairs.  Garage springs broke, Stove hood vent broke, sewer pipe blockage, water softener went out, water heater.

As others have suggested you could househack and rent out a room to help cover your mortgage.

Having a house is wonderful but don't stretch your limits and put yourself in a bind if something breaks.

If saving 10k doesn't seem realistic you may want to start reviewing your expenses and ways you can cut some things out.  I ended up getting a 2nd job to buy my first house.  Where there's a will there's a way.  I save at least 1k a year by not going for a morning cup of coffee or going out to eat.

Originally posted by @Jamia Stevens :

I’m just starting out and I was trying to get a preapproval letter so that I could know what price range to start looking in. I was told that I should save up $10,000 before I even consider getting a preapproval letter but that would take me years. I would love to buy my first property by May but how do I come up with that kind of money? Should I try to look for a partner that would contribute the capital or what do I do? It was discouraging to hear that so any and ALL advice would be great!!!!

If you live in the property you can do an FHA loan. Only requires 3.5% down. Many markets where you can get a home for $100k or less so the good news is that no you don't always need $10,000 in the bank to get started. I didn't have anywhere near $10,000 to my name when I got started in 09. Running a $50M portfolio of rentals today.

@Jamia Stevens

Hustle! If you are working a 40 hour job sounds like you have 20 extra hours you can be working a week to me. If you're already working 60 hours get a better job if it would take years to save 10k you're not making enough. Maybe get a new side hustle preferably in real estate. Become an agent not sure about your state but in Texas takes less that 6 weeks and cost 600$ you could make 10k in 3 or 4 small transactions or in 1 big one just got to hustle "I can't afford that" no! How can I afford that! If you want it bad enough you will make it happen!

@Jamia Stevens nod it would take you years to save up 10,000 then perhaps home ownership is not affordable with you right now. You did not provide any specific details about your situation to receive specific advice.

Generally to save up money you need to be living beneath your income. So it may involve going on Craigslist or asking around and finding a roommate living situation when your current lease is up. Living with someone else cuts back on rent, wifi, and utility costs. Then look at your budget to find other ways to cut costs and if you are not currently budgeting your money start making a budget and living on it ASAP. Account for every dollar that you earn. Do not go on vacation or eat out. Do meal planning and cook all of your meals at home to save money. Don’t go into debt.

If you have already cut costs and you can’t cut any further then look at increasing your incomes. That may mean finding a better paying job and/or getting a second part time job to earn more. Between cutting costs and increasing your income it should be possible to save money unless you are disabled and unable to work.

@Jamia Stevens

Don’t put your investing goals on hold, figure out what value you can provide and partner with someone. Figure out how to find a deal and if it’s good, you’ll either get paid a wholesale fee or get to partner with someone.

I’m always looking for deals in my markets and I’ve paid many wholesale fees and also brought the deal finders on as partners. Do That with someone a few times and it would be a great learning experience as well.

No matter what. Start doing something. Momentum builds momentum so sitting around waiting and hoping you can save for a down payment could end up never being a reality.

@Jamia Stevens

Currently I am in the same boat and I’m seeing that money is needed.

Right now I am looking to purchase a home with a FHA loan (3.5% down) and house hack to help save the funds I need to make other investments. That can be with cash or equity.

The best thing to do is be as frugal as you can for as long as you can. Try and cut your largest monthly expenses. Continue to connect with other investors!

I am also in the Nashville area and would love to connect!

Originally posted by @Dennis M. :

@James Wise

Wow I didn’t realize you started from such humble beginnings James

Yup I was 21 and managing a Radioshack with an income of approx $30k/yr when I bought that 1st home. Lived there for several years. Still rent it out today. I think the current tenant just re-upped for their 3rd year at around $1,070/mo or so.

Agree with what others have said, you need more funds than what you currently have. More than anything, you need to have enough buffer for your personal finance. Secure yourself with a 3-month living expense back up fund before trying to risk funds (which may end up being a lot more than what cash you currently have). 

I recommend that you only use what money you can afford to lose, not what you have to live on. A downturn may happen in the near future and it would really open up a can of whoop *** on investors who are over extended. Play it safe and be patient. 

@Jamia Stevens

The 0% owner occupant loans are making a comeback.

Ask around with local realtors or mortgage lenders. I’ve sold a couple recently where buyers brought 0 or very little to the closing table. A good realtor and mortgage person can work this for you.

Combine that with a house hacking strategy and you’re in the game.

@Jamia Stevens

It isn’t just repairs, but can you afford the mortgage if the property is vacant or the tenant quits paying? This is also why an emergency fund and/or good income is important. Set yourself up for success. Go in as prepared as possible. You can do it! Be patient and do it right!

@Jamia Stevens No magic or tricks here - either make more or save more (or both!). Beware of folks who say otherwise - plenty of folks happy to sell you a shortcut. Keep at it!

@Jamia Stevens

One option is to bank your paycheck and put your living expenses on no interest credit cards if you get those offers. If you can save 67% of the down payment that could help you close the gap faster. Also, keep in mind you can use rent profit to pay the credit card back off after you buy the property and finish paying it off before your no interest period expires.

That can speed up buying a property and gets you going as an investor. I have done that several times to get a property.