What Reddit gets wrong — and right — about saving for a home

Reddit may be the place where you can dive into anything, but that doesn’t mean you should believe everything you read. Good advice and questionable takes often exist side-by-side, including when it comes to tips on affording a home. Here’s what Bankrate experts have to say about a few common down payment savings strategies you’ll find on Reddit.

1. Buy a multi-unit home

One of the most popular homebuying strategies on Reddit is purchasing a two- to four-unit property, then using one unit as a primary residence and renting out the rest. This approach is sometimes called “house hacking.” Bonus: You can often use up to 75 percent of your future rental income to qualify for the mortgage.

But be aware that this strategy comes with some caveats. For one, you’ll be a landlord, which will involve the occasional late-night maintenance call, among other things. And you can’t always count on income from your units.

“One must have substantial cash reserves to forge ahead during periods when units are not rented and when they require repair,” says Mark Hamrick, senior economic analyst for Bankrate. “It is not for the faint of heart or those who don’t have sufficient financial resources.”

However, if you can make it work, this strategy can set you up for financial success long term, says Hamrick. Eventually, you may even save enough to buy another home or investment property.

2. Live with roommates (including family)

Bunking up has long been a common cost-cutting practice, and it’s something many Redditors recommend when saving for a down payment — or if you have extra room once you buy a home.

“[I] lived with three roommates for five years,” said one Redditor. In most locations, renting a larger place and splitting it is cheaper than renting your own studio or one-bedroom apartment.

Living with roommates could also mean moving back in with family.

“I was fortunate enough to move back in with my mother. Spent eight months in hell, but emerged on the other side,” said another Redditor.

Living with other people means sacrificing personal space — and depending on the other people, it may or may not be worth it. On the other hand, when it comes to this strategy, there’s very little financial risk and a lot of potential reward.

3. Pull money out of your retirement account

There are a few ways Redditors — and others — have tapped retirement savings to make a down payment:

• Withdraw from your IRA: First-time homebuyers are allowed to withdraw up to $10,000 per buyer — this means $20,000 for couples — from an IRA penalty-free to fund a down payment. If your IRA is a Roth, and you withdraw only your contributions, not its earnings, the money is also tax-free.
• Borrow from your 401(k): Some 401(k) programs let contributors borrow from their retirement accounts, then pay the money back with interest. This won’t impact your retirement savings as much as an outright withdrawal, and if you make on-time payments, you won’t trigger fees from the IRS.

The downside to tapping your retirement savings for a home is that you may miss out on gains in the stock market — even if you repay the money. Plus, more than half (57 percent) of Americans who are working full-time, part-time or who are temporarily unemployed feel behind on their retirement savings, according to Bankrate’s Retirement Savings Survey. Withdrawing money for reasons other than retirement will only put you further behind.

“With respect to borrowing or making a substantial withdrawal from a 401(k) for a down payment on a home purchase, I’m not a fan,” says Hamrick. “Additionally, once one commits on a home purchase, there’s the potential that the monthly budget becomes more stressed, not less so.”

4. Skip a down payment

Many Redditors have been able to leverage government or nonprofit programs, as well as family help, to avoid making a down payment.

• VA loan or USDA loans: Loans backed by the Department of Veterans Affairs (VA) or the United States Department of Agriculture (USDA) can require no down payment. VA loans are available only to borrowers affiliated with the military, and USDA loans are available only to buyers in certain rural areas — and both charge fees. However, if you’re eligible, either one could be a good option.
• Down payment assistance: Many state and local governments, as well as nonprofits, offer grants or low-cost loans to help first-time buyers with upfront costs. “The most important thing I can say is that, if you go with one of these programs, you need to work with a mortgage originator who knows the program inside and out,” says one Redditor.
• Receive a gift: Many Redditors mention using financial gifts, particularly from family, to make their down payment. Bankrate’s Down Payment Survey found that 14 percent of current homeowners received a gift from family or friends to help with their down payment. If you take this route, you may have to provide your lender a gift letter.

Starting out with very little equity in your home can be a bit risky. For example, if home values drop soon after you buy, you may end up owing more on your house than it’s worth, also known as being underwater on your mortgage. And government-backed loans and down payment programs involve additional hoops you’ll have to jump through before getting approval. But in general, reducing your down payment is a good way to afford a home.

5. Move to a cheaper area

To afford a home, many Redditors have uprooted themselves and moved to lower cost areas, sometimes even to a different state.

“[I] talked my husband into accepting the same salary at a job in a low-cost-of-living state,” said one Redditor. “Could not have bought a house in the state [where] we were originally living.”

Some Redditors who used this strategy found the transition tough. Areas with a high cost of living are usually that way for a reason — they have good schools, great weather or bustling culture.

“Worth it? In our case, yes. Staying long term? No,” said one Redditor. “Whenever I visit a more vibrant city I realize how much life I’m missing out on, but for stacking up some cash, it’s definitely been worth it.”

You may not want to stay forever, but if you want to buy a home now and moving will help you afford one, it’s definitely an option worth considering.

The top tip for buying a home? Patience.

The most important thing to remember when you’re buying a home, according to an overwhelming number of Redditors, is patience. Taking time to build savings, improve your credit and find the right home is crucial. Sacrificing your financial stability to buy a home quicker isn’t a smart move, according to Hamrick.

“Looking at major financial goals — like saving for retirement, saving for emergencies and paying down debt or managing debt effectively — one should not substantially risk one of those goals for the purpose of achieving another,” says Hamrick.