Unless you win the lottery or find Captain Kidd’s treasure, getting money for a down payment on a home can be difficult. Between rent, groceries, and monthly bills, it can seem downright impossible to save enough cash for even a 3.5 percent down payment (the minimum amount needed to qualify for a loan).

But, with a little creativity and patience, you could raise a sufficient amount to get you on your way. Here’s how.

Tap your IRA

The IRS doesn’t make it easy for you to take money from your retirement account before you reach 59½. And if you do it, there’s a 10 percent tax on the distribution and penalty fees.

But there’s a loophole. You can withdraw up to $10,000 from your IRA without penalty to finance your first home. Just keep in mind that you’ll have to use the money within 120 days of getting it and you might have to pay taxes on any interest accrued.

Get with a down payment assistance program

Get ready to be blown away: you could get FREE (or almost free) money for a down payment! Most cities and counties have down payment assistance programs designed to help first-time homebuyers overcome the down-payment hurdle.

In San Francisco (where I live), if you earn a modest income, are a first-time homebuyer, don’t have a ton of cash on hand (less than $200,000 to be exact), and meet certain other criteria, you are eligible for a “silent second loan that requires no payments for 40 years” from the city.

That means you can borrow up to $200,000 to buy a place of your own. And here’s the beautiful part: you don’t have to make monthly payments or pay interest until the term ends or you sell the property. Of course, there’s no such thing as a free lunch. When you decide to sell or the time’s up, you’ll have to repay the loan plus a share of any appreciation. (Which shouldn’t be a problem because you’ll have built up equity and hopefully made money on your purchase.)

So, do a bit of research and see what’s out there. If your city doesn’t offer a plan that works for you, the Federal Housing Administration might have a down payment grant that does.

Make a budget

Now, I’m not saying you should take extreme austerity measures (like living off ramen and using candlelight for heat) to save money. But there’s something to be said about making a budget and trimming the fat where you can.

In fact, there are free apps that can help you do that. (If you have any you’d recommend, let us know.) In my case, I realized that I spent a lot of money each month on dining out and frivolous shopping. By paring my budget of these luxuries, I was able save a bit each month and whole a lot over the year.

With a budget, you can see exactly how much money’s coming in and how much is going out. Are you buying an expensive cable package when you barely watch TV (like I did)? Are you paying fees because you forgot to pay bills on time? Do you buy your lunch every day?

All of these small expenditures add up. If you can cut them without feeling the pinch, you could save a lot over time.

A note on financial gifts from your family

If you’re lucky enough to have a generous family, Uncle Sam makes it easy for relatives to help you finance your dream of homeownership. In 2014, parents, grandparents, and other charitable relatives can each give you up to $14,000 without paying the gift tax required by the IRS.*

So, let’s say Mom and Dad want to help out with your down payment and they’d like to give you the max allowable. Since each parent can give you $14,000 tax-free, that means you’d have $28,000 at your disposal.

Of course, when it comes to gifting a down payment, there’s a right way and a wrong way.

Here’s how to do it without raising some eyebrows.

Write a gift letter

For most lenders, large amounts suddenly appearing in your bank account signal a red flag. In other words, your parents shouldn’t just deposit the money into your account without a proper paper trail.

Typically, lenders will want proof that the funds you’re receiving for the down payment are legit, which usually comes in the form of a gift letter. (Don’t worry, most lenders will provide this during the loan process.) Other paperwork, like bank statements, might also be necessary.

If you’ll be using gifted money, check with prospective lenders for the specifics.

Where to keep your down payment

Once you have a decent amount for a down payment, it’s smart to keep it in one savings or money market account. This makes it easier for lenders to verify your assets and easier to liquidate when the time comes.

In general, you want to steer clear of any savings option that ties your money down for a set period of time. For example, I chose a certificate of deposit that gave me a modest interest but allowed me to withdraw the money penalty-free before the term ended. This allowed me the option of keeping my money both accessible and out of reach (to avoid the temptation of spending it).

And hey, if I can come up with a down payment for a home (okay, shoebox) in San Francisco, anyone can do it.

Good luck! And be sure to check back on Friday for advice on shopping for mortgage rates. While you’re at it, here are the top scary things your real estate agent might not tell you — and what to do about it.

*The financial gifts information provided herein is not intended to constitute tax advice. Please consult with your tax advisors about your specific circumstance.

Insurance 101 | Homeowners 101


about Anne

If variety is the spice of a copywriter’s life, then Anne’s career at Esurance was akin to sassafras. From 2010 to 2014, she added a touch of zest to topics ranging from cleaning with baking soda to becoming a first-time homeowner.