Millennials face a challenging housing market, but that has not deterred their demand for homes. As the pandemic fueled the home-buying trend, the down paymenthas become a crucial aspect of purchasing a house. The down payment size will impact the monthly mortgage payment and the chances of the offer being accepted. Here are the top ways millennial homebuyers can fund their down payment.

Savings

Traditional savings is the most popular way to save for a down payment. This can include setting aside money in a cash account for day-to-day transactions or opening a high-yield savings account for better interest rates. Other savings options are stocks, bonds, and other investments that can appreciate over time and can be easily converted to cash when the time comes to buy a house.

Crypto holdings

Cryptocurrenciessuch as Bitcoin and Ethereum present an opportunity for millennials to raise capital quickly, but the values can also crash abruptly. For those who have seen their crypto holdings grow, converting them into real estate is an excellent way to capitalize on the gains. However, converting crypto into cash can result in a taxable event, so it is advisable to consult with an accountant.

Gifts from family members

The rising demand for housing and prices has resulted in many millennials seeking financial help from parents to fund a down payment or closing costs. Gift money is usually transferred in one lump sum, and there may be gift tax implications, so it is advisable to consult with an accountant. Lenders will usually ask for documentation of the fund transfer and a gift letter.

Existing home equity

Millennials who already own a home through purchase or inheritance have access to home equity as a source of funding for a down payment. This can be done by selling the current home to take advantage of the equity or by taking out a home equity loan or line of credit. It is best to speak to a mortgage lender to understand how to use the existing home equity.

Borrowing from retirement savings

Borrowing from a 401k is another option for funding a down payment, but there are early withdrawal penalties and taxes to consider. Mortgage lenders will generally allow buyers to pull money from retirement plans to fund a down payment.

It's important to note that there may be tax implications and other costs associated with the abovementioned sources of down payment, so it's advisable to consult with a mortgage lender or accountant for guidance.

Conclusion

There are multiple ways for millennials to fund their down payment, from traditional savings to crypto holdings, gifts from family members, existing home equity, and borrowing from retirement savings. Aspiring buyers should consider their options and consult a mortgage lender or accountant for guidance.