One of the biggest obstacles for first-time homebuyers is securing a 20% down payment. Fortunately, there are options to make that first home more attainable.
The 20% Barrier
Traditionally, one of the biggest obstacles for first-time homebuyers is securing a down payment. Lenders expect buyers to contribute 20% of their home’s sales price; it provides the the loan originator some security and the buyer some immediate equity, As home prices have risen, however, so has the difficulty of meeting that threshold.
In just the last five years, the median U.S. sales price rose 26.7%, from $329,000 in 2020 to approximately $417,000 in the first quarter of 2025. That correspondingly raised the down payment payment required from $68,500 to $83,400. Many first-time buyers are asking how they can afford that much cash up front.
Fortunately, there are several ways to make that down payment more attainable.
Savings
Saving is still one of the best ways to prepare for a home purchase. Start early and savie consistently. Even $300 a month can yield over $11,000 in three years if placed in a high-yield savings account or certificate of deposit (CD) earning modest interest. The key is risk aversion—most prospective buyers can’t wait to recover from market volatility.
Family
Family members can gift significant amounts—up to $18,000 per person in 2024 (up from $12,000 in previous years) without tax consequences. As gifts, they don’t count against your debt-to-income ratio. Lenders will need documentation of any gifts as part of the application process.
Alternatively, a family loan may be an option, though lenders will consider this a debt obligation. Still, terms from family are often more flexible than from banks.
Retirement Funds (Use with Caution)
401(k) owners may be able to borrow up to $50,000 or half their vested balance, whichever is less. Since account owners are repaying themselves (with interest), this can be a practical route—but one with risk. If the account owner leaves the job, any loan balance may come due immediately.
First-time homebuyers can withdraw up to $10,000 penalty-free to apply toward a down payment. This applies to both traditional and Roth IRAs, though income taxes may still apply on withdrawals from traditional accounts.
Co-Buying Options
Having a co-buyer—either a housemate who shares ownership or a silent investor—can make purchasing a home more feasible. However, these arrangements should be legally formalized to avoid disputes later.
Assistance Programs
Federal, state, and local programs offer meaningful support for first-time buyers:
FHA loans require just 3.5% down and are ideal for buyers with moderate credit.
VA loans offer zero-down options for eligible veterans and active-duty service members.
USDA Loans is the home loans program of the US Department of Agriculture, offering zero-down down loan options in eligible rural areas.
Fannie Mae and Freddie Mac both offer loan programs with 3% down payments to qualifying homebuyers.
Most states also offer their own Down Payment Assistance (DPA) programs, often in the form of grants or low-interest secondary loans. These are typically income-based and can reduce or eliminate the upfront cash needed to buy a home.
Final Thoughts
While saving 20% for a down payment may seem out of reach, it’s far from the only option. Whether leveraging retirement funds, applying for assistance programs, or working with family, there are multiple paths to home ownership. With careful planning and the right resources, even first-time buyers can make that down payment a reality.
Sources
Fannie Mae, Freddie Mac, Internal Revenue Service, US Department of Agriculture, US Department of Housing and Urban Welfare, US Department of Veterans Affairs