What To Do If I Don’t Have 20% To Put Down On A House?

If your budget does not stretch to putting a 20% deposit down on a new home, there are other options available to you.

Depending on your circumstances and credit history, you can get loans or avail of government programs that offer lower down payments to help you get on the property ladder. These alternative methods, however, can have downsides, so it is important that you choose the option that best suits your financial situation.

FHA Loans

When you apply for a FHA loan, you can expect a down payment as low as 3.5%. Keep in mind, though, that the lower the down payment, the higher your monthly mortgage payment is likely to be. Your credit history will also have a bearing on whether you qualify for a FHA loan. Monthly payments are also higher because you will have to take out insurance on the loan. A FHA loan is best suited to those who fall slightly short of making a 20% down payment.

Veteran Loans

If you are a current or ex service member, you can get a loan with 0% down that will enable you to purchase a home. You will not be penalized with higher interest rates, which makes this an excellent option for those who have served their country. These loans are offered by the Department of Veterans’ Affairs, via the Veterans’ Benefits Administration.

Family & Friends

Although this option is often difficult to bring up in conversation, you can save yourself a lot of money in added interest by asking family or friends for the loan. You would have had to pay off the extra with interest anyway, so sometimes it makes more sense to borrow the money from someone close. In many cases, lending you the money may actually benefit the family member, too. For instance, they could increase their interest yield by lending you the money at a reasonable rate.

Use Retirement Funds

So long as you don’t breach the permitted amount allowed under your 401(k), you could use retirement funds to cover the 20% down payment. This method requires that there is a repayment plan in place. The greatest risk with this method is if you leave your job – In which case you could end up having to repay the balance within 60 days. Failure to make the payment will cost you, as you will have to pay income taxes as well as incurring a penalty. Only consider this option if you have no other choice and your job is secure with the company.

Contingency Contract

A contingency in your contract basically says that your offer is subject to the sale of your previous home. So, what you are actually doing is using the sale of your old home as collateral to pay the down payment on your new home. This method is perfectly legal – in fact, this type of contingency is common in real estate and sellers are used to seeing it as part of a buyer’s contract. The downside of this method is that if you are looking to purchase a home in a popular location, the seller will likely opt for a buyer who already has the 20% down payment secured.


If you are planning on escaping the hustle and bustle of the big city, why not take advantage of a USDA Loan? These loans are available to those buyers looking to move to rural areas, whose income is not more than 115% of the median income for the area. The interest rate on a USDA loan is set at zero percent; however, there are some considerable drawbacks worth noting. First of all you are limited to certain houses under the terms of the loan. Your budget must not include spending more than 29% of your gross income on housing cost. Total debts cannot amount to excess of more than 41% of your gross income, either.

Whichever method you opt for, always consider your budget. Before you jump straight into purchasing a new home, sit down and work out the numbers. Look at what you have coming in as well as your outgoings, and then consider how much you can afford to budget for your mortgage without putting yourself into financial difficulty. Failing to keep up with loan or mortgage repayment can have a devastating effect on your financial situation and future credit, so tread carefully. Be realistic about what you can afford and don’t allow what you want to dictate what you need. There is plenty of time to get yourself to a position in life where you can afford your dream home. By working smart, exploring all your options and being patient, you will make much better investments. Speak with various real estate agents, loan providers, family and friends, so that you have as many options as possible to choose from.

If you have any questions about mortgage loans or payments, talk to one of our lending experts at Galaxy Lending Group. We will inform you on all loans as well as the different options that you have if you do not have enough for a down payment. Call us today 602.595.1233!