How Buyers Fund Their Home Purchase: Smart or Risky?

About 1 in 5 buyers tap into a first-time homebuyer program so they can afford to own, and about the same number rely on the generosity of family and friends.

Before we get into this story, let me tell you about another option. Have you heard of Homefundit? I did a blog post about this program on September 6th. It's a way to crowdsource your down payment. It's a great program that you should really consider if you are thinking of buying a house, especially if you're a first time home buyer. Not only is it an easy way to let your friends and family help you save up your down payment, but both Homefundit and I will match your contributions! (Limits apply. See details on the site.)

NEW YORK – Buyers are doing everything from tapping into retirement savings accounts to taking financial gifts from family and friends to bring more money to the closing table. Bankrate.com recently surveyed more than 2,500 adults about their home purchase to find the top ways they’re saving.

About 47% of first-time homebuyers said they saved on their own to purchase a house, but sometimes buyers tapped into multiple sources to make their home purchase happen, including:

A first-time homebuyer grant or loan assistance program (21%)
Financial gifts from family or friends (21%)
Taking out money from their retirement savings (8.8%)
Getting an additional source of income (7.4%)
Receiving a loan from family or friends (6.3%)
Moving in with family or friends to cut down expenses (5.7%)
Selling personal items like jewelry, cars or electronics (4.9%)

Millennials are more likely than Generation Xers to say they’ve used retirement savings or sold personal belongings in order to find more money for buying a home, the survey found.

“It’s troubling that people feel like they have to tap into their retirement savings,” says Deborah Kearns, a mortgage analyst with Bankrate. “They’re already not saving enough for retirement, and they’re compounding the problem by taking out a loan or not contributing to save for a down payment.”

Buying the 'Burg note: What isn't mentioned in this article is owning a home is a path to building wealth. Maybe tapping into your retirement account seems like a bad idea, but with the national average rate of appreciation in the 5-6% range, that money may end up earning you more through the appreciation on your house than you would have earned in your retirement account. Not to mention, you get to stop paying your landlord's mortgage for them.

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