A First-Time Homebuyer's Guide, Start To Finish - The Strategic First-Time Homebuyer Book - Chapter 3 How To Find The Down Payment

April 27, 2026

r/NewbHomebuyer

......This is chapter 3

Hey guys, I spent a lot of time writing this book, and I had this subreddit in mind as I was writing it, so I thought I would post it here for you for free. If you want the physical book you can always go on Amazon, but here's my gift to you 😄

I'll include links so you can jump between chapters easily.

I hope you find it helpful.

The Strategic First-Time Homebuyer

Start to finish, with strategies to get approved and save thousands in interest, costs, and the down payment.

Introduction 1

Chapter 1 How Much Can I Afford? 3

Chapter 2 How Much Cash Do I Need? 16

Chapter 3 How To Find The Down Payment 30

Chapter 4 Your Debt To Income Ratio 41

Chapter 5 Choose Your Lender 69

Chapter 6 You’ve Been Denied (Your Credit) 80

Chapter 7 Selecting a Real Estate Agent 90

Chapter 8 Shopping For a House108

Chapter 9 Under Contract: Inspections and Appraisals 121

Chapter 10 Under Contract: Rate Lock and Underwriting 129

Chapter 11 How To Lower Your Rate 144

Chapter 12 Closing 163

Chapter 13 Post Closing 171

About the Author 190

Glossary 191

Chapter 3 How To Find The Down Payment

Some people are better savers than others. I can only save if it’s out of sight and out of mind, and for me, that was my 401(k).

So I don’t write this from a place of “I own a home, so I’m a great saver.”

I know it’s hard to save.

I also know it’s expensive to furnish a home.

So if you’re in a position where saving is hard, or where you’d rather keep as much as you can to actually fill your home with beds and tables, then here are some ideas and steps you can take to get there.

● Get a gift

● Sell an asset

● Retirement

● Take out a loan

● Negotiate for closing costs paid by the seller

● Swap a higher appraised value for seller credits

● Down payment assistance

● $0 down programs

Get a Gift

This idea sounds a bit out of touch, right? “Oh, just ask your rich relatives.”

I can see a few outcomes.

Either they say no, or they say no and laugh, or they say, “Sure, we’ve been planning for this.”

Personally, I’m investing for my little kids right now. By the time they’re ready to move out, hopefully what we’ve saved will help them with college, a house, or another endeavor. I can’t imagine what home prices will be in 10–20 years from now.

A few rules with gifts: They must come from a family member to be counted as eligible funds for your purchase.

If the gift is coming from a close friend, then it begins to get a little silly. Underwriting will need to document proof of a long-term, sustained friendship. That might look like old Facebook posts showing pictures of the two of you together.

Silly, right?

Sell an Asset

If you sell something of value, like stocks, vehicles, gold, silver, trading cards, crypto, etc., then you can use those funds toward the purchase of your home.

Underwriting will usually want a two-month history showing the funds. But if the sale of your asset was recent, within those two months, they’ll want to see some sort of document, receipt, or confirmation recording the sale.

Retirement

Usually, when you withdraw from an IRA earlier than retirement age, it comes with a 10% fee ($1,000 for every $10,000 withdrawn).

If you (and your spouse) haven’t had an ownership interest in a principal residence in the past two years, you can pull up to $10,000 from an IRA without that 10% penalty.

A traditional IRA withdrawal will still be taxed as ordinary income, but you at least won’t pay that 10% fee. (Roth IRA contributions can come out tax and penalty free anytime.)

Talk with a tax professional if you’re considering this option.

Another option you can explore is taking a loan against your 401(k).

Take Out a Loan

Loans taken against your retirement typically do not count against your debt-to-income ratio because you’re borrowing from yourself.

In another example, say you have a vehicle that’s owned free and clear. You can take a loan against that car, but the loan will count against your debt-to-income ratio.

What is not encouraged is taking out an unsecured loan for a house purchase.

If it’s secured with an asset, you’re typically fine. No assets? Not fine.

Negotiate to Have the Seller Pay For Closing Costs

If you’re in a buyer’s market (homes sitting for sale for a long period of time, homes seeing several price cuts, etc.), you might see that sellers are more willing to pay for closing costs.

Here are the rules when it comes to seller-paid closing costs:

● FHA loans allow up to 6% of the purchase price in seller-paid closing costs.

● USDA loans allow up to 6% of the purchase price in seller-paid closing costs.

● VA loans allow up to 4% of the purchase price in seller-paid closing costs.

● Conventional loans have a flexible amount (see chart below).

Down Payment	Max Seller-Paid Concession
3% - 9%	3%
10%-24%	6%
25%+	9%

Swap a Higher Appraised Value for Seller Credits

You won’t know this until later (unless your real estate agent knows you're getting a great deal ahead of time), but if your house appraises higher than the purchase price, you have some options.

Pretend the purchase price was $400,000 and the appraised value came in at $405,000.

Here’s how to take advantage of a higher appraised value:

Increase the purchase price by $5,000 to $405,000.
Increase the seller concessions by $5,000.

This gives the seller about the same net proceeds, but allows you to pay $5,000 less in closing costs.

This will increase your monthly payment, and total interest, but if upfront costs are where it’s hurting the most, a higher appraised value will give you flexibility.

Down Payment Assistance

These local down payment assistance programs come in two forms:

● Grants

● Loans

A grant is basically free money. If you qualify under specific restrictions, you get it.

If it isn’t a grant, then it’s a loan. There are three types of loans that the program might offer:

● Repayable, with interest

● Deferred, no interest

● Deferred and forgivable

Repayable With Interest

A repayable loan works how most loans work. They give you an amount to cover your down payment, and sometimes your closing costs, and you repay the amount in monthly increments while being charged an annual interest rate.

I’ve seen programs where the interest rate is lower than normal market rates, but I’ve seen other programs where the interest rate is higher than typical market rates.

I’ve seen programs where the repayment term is 10 years and others where the repayment term is 30 years.

Each program’s offer will vary.

Deferred Without Interest

If you were to compare this type of loan to cancer, then you’d call this one benign.

It doesn’t grow with interest.

These types of loans only come due when you refinance or sell the home.

If your home has appreciated enough, you may be able to include the loan amount in your new refinanced loan without paying it out of pocket.

When you sell, the loan is paid off with the proceeds of the sale.

Deferred and Forgivable

Not only are these loans at 0%, but they may forgive the amount they’ve loaned you. It usually comes with a qualification.

A common qualification is living in the home for a certain amount of time. Three years is common, but I’ve seen programs push it as high as 10 years.

If you move out just shy of meeting the forgivable period, you may be in luck. Some programs will forgive it in pieces.

For example, if you were loaned $10,000 with a three-year forgivable period but moved out in year two, the program may forgive 33.3% of the loan for each year.

So instead of owing the full $10,000 back, you may only owe $3,333.33.

The guide I’ve built out for all 50 states isn’t all-inclusive. I may have missed some. It also doesn’t take into consideration some national programs that exist.

If you’d like help determining which route might fit you best, visit newbhomebuyer.com/dpa, and someone will help you compare these programs side by side.

$0 Down Programs

Rather than assist you with the down payment, some lenders will forego the need for a down payment completely.

Here’s the list:

● VA mortgages

● USDA mortgages

● Portfolio loans from local banks

VA Mortgages

VA mortgages are strictly for eligible military veterans.

USDA Mortgages

USDA mortgages are strictly for rural areas. Here’s a map to show you which areas are eligible:

eligibility.sc.egov.usda.gov/eligibility

USDA loans also have income restrictions. The income restrictions are specific to the county and to household size. The more kids there are, the higher the income limit. On the same link as the map, there’s also a section to check if you make too much money.

Remember: this takes into account household income. So if there’s an adult who isn’t on the loan but is earning an income, that income must be considered as part of the overall household income.

Portfolio Loans From Local Banks

$0 down payment portfolio loans from local banks are determined by the local bank or credit union. It’s their loan, so they make the rules. Here are some common rules they put around these loans:

● Higher minimum credit score

● For first-time buyers only

● Lower debt-to-income ratios

● Purchase price/loan amount caps

One common benefit of these types of loans is that most of them will not charge a mortgage insurance payment. Double-check this as you explore those programs.

Gift of Equity

This isn’t all too common, but if you’re buying a house from family and don’t have a down payment, they might be giving you a good deal on it. You can take that “good deal” and transform it into a down payment.

Even if you aren’t getting a deal, you might be able to argue for a 6% discount, considering they’d be saving on real estate agent fees.

The difference between the market value and the sale price is considered “equity” and can be counted toward your down payment and closing costs.

Example:

● The home’s market value: $400,000

● Your family member sells it to you for: $350,000

● The $50,000 difference is a gift of equity.

That $50,000 gift can be applied toward:

● Your down payment (for an FHA loan, you only need 3.5% down, which is $14,000 in this case)

● Closing costs

How do you structure it to end up with $0 out of pocket?

You might be wondering about closing costs too. Luckily, in this scenario, the gift of equity can cover both the down payment and the closing costs.

Let’s use the above example again:

● Family member wants to net $350,000.00

● The appraised value is $400,000.00

● The closing costs are $10,000.

This is how I’d structure it:

● Purchase price: $400,000.00

● Gift of equity: $50,000.00

● Loan amount: $360,000.00

When you structure it this way, you’ll end up with $0 out of pocket, and your family will net $350,000.

You’ll allocate $10,000 of the gift of equity toward the closing costs, and the rest will go toward the down payment. That’s how we end up with the $360,000 loan amount.

$10,000 closing costs + $40,000 down payment = $50,000 gift of equity

The gift must be documented with a gift letter stating that the money isn’t a loan and doesn’t need to be repaid.

Here are a couple of rules:

● An appraisal is required to confirm the market value of the home.

● The relationship between the buyer and seller must be disclosed to the lender.

Since you're buying from family, you’re essentially leveraging the built-in equity in the home to reduce your upfront costs. This can make it easier to qualify for a mortgage and reduce the amount of cash you need to close.

The family giving the gift may want to speak with a CPA about any tax implications.