If you're looking to buy your first home, you know that saving for a down payment requires more than just skipping the avocado toast and suspending your Netflix account. Perhaps you are early in your career and don't have much money left over to save each month. Or your rent keeps going up year after year and you don't have any money to put toward a down payment. Or you have had to draw down your savings to pay for medical bills.

The scenarios are endless, and no doubt there are many difficulties that make homeownership feel out of reach. There is good news, however. There are many smart financial strategies for becoming a homeowner, including loan options, grants, and tax incentives.

Here's how you can afford to buy a home even if you don't have 20% saved as a down payment, have less than perfect credit, or are not one half of a working household.

You've probably heard that a 20 percent down payment is the gold standard when it comes to home buying. However, that is not the norm, especially for first-time homebuyers. The National Association of Realtors reports that the average down payment for first-time homebuyers is 7 percent. In fact, in an independent survey of single female homebuyers by Marie Claire and House Beautiful, 60% of respondents reported a down payment of 10% or less.

Still, a major benefit of a 20% down payment is the ability to avoid private mortgage insurance (PMI). Lauren Anastasio, a certified financial planner with SoFi, a personal finance company, explains, "PMI is insurance on mortgages that lenders require you to purchase to protect them in the event of a loan default." 'This is insurance for the lender, not for you.'

Typically, PMI pays 0.5 percent to 1 percent of the mortgage amount each month on an annual basis. As an example, if you pay 0.5 percent PMI on a $300,000 loan, you would pay $1,500 per year, or an extra $125 per month.

In many cases, PMI will eventually go down. Says Anastasio. 'With some mortgages, once you have 20% equity in hand, you no longer need PMI, and your monthly payment goes down for the remainder of the term. Other mortgages, even if you reach 20% equity right away, may require you to make PMI payments for 10 years, or even over the life of the loan."

Bottom line: it is possible to purchase a home without having to come up with 20% equity. When budgeting, consider the cost of PMI, homeowner's insurance, HOA dues, property taxes, and emergency repair funds. The lender can help you calculate these costs together. For more information on the unexpected costs of owning a home, see here (opens in new tab).

As a first-time homebuyer, you should have a conversation early on about your unique loan situation with the lender, says Sierra Hudson, a licensed mortgage advisor in Georgia and branch manager at Angel Oak Home Loans. During this conversation, you want to discuss your credit score, the amount of cash you can put toward a down payment, your salary and other sources of income, the amount of debt you have, and what career field you work in. All of this information helps lenders guide you to the loan that best fits your situation, Hudson explains.

"These days, there is a loan program to fit most homebuyers," she says. For example, if you are self-employed, there are bank statement loans specifically for the self-employed. Talk to your lender about conventional loans as well, and don't overlook Veterans Administration (VA), Federal Housing Administration (FHA), and U.S. Department of Agriculture (USDA) loans.

But if these loan programs don't fit, there are still options, says Jeremy Sopko, CEO of Nations Lending, a mortgage company licensed to lend in 47 states. Each state has its own down payment assistance program, with varying criteria, he explains. Some counties and municipalities have their own programs to assist first-time homebuyers.

"If you qualify, you may be eligible for a grant against your down payment. In some cases, loan interest rates may also be preferential.

In short: There are many incentives and grants out there. Your mortgage professional should be familiar with them, so "What down payment assistance (or DPA) programs are available?" and they should be able to point you in the right direction," says Sopko. If you want to find out for yourself, contact your state's housing finance agency.

You may have heard about the federal first-time homebuyer tax credit. This credit was implemented during the Obama administration but is no longer available. While not the same as a tax credit, homeowners may be eligible for a mortgage interest tax credit, which may reduce their tax bill. [When considering loan options, you must decide whether you want a fixed-rate or variable-rate mortgage. According to loan origination data from Ellie Mae, a software company that processes mortgages, fixed-rate mortgages are by far the most popular route, with over 95% of buyers currently opting for it. Fixed-rate mortgages mean there are no surprises: the mortgage payment remains the same throughout the life of the loan.

Variable-rate mortgages, on the other hand, have a lower introductory rate, and the rate resets after a certain period of time. For example, a 5/1 ARM means that the mortgage rate is fixed for five years and then adjusted on an annual basis.

When interest rates are low, Sopko explains, it is a good idea to lock in a fixed-rate mortgage so that interest rates do not rise in 3, 5, or 7 years, or in the number of years specified in the adjusted-rate scenario. Still, in some cases, this approach may work for you. For example, if you are certain you will move within the introductory period before interest rates reset, you may consider a variable-rate mortgage. About 6% of survey respondents opted for a variable-rate mortgage.

You also need to decide whether you want a 30-year mortgage or a 15-year mortgage. 30-year mortgages are more popular and take 30 years to pay off, whereas 15-year mortgages, surprisingly, are paid off in 15 years. 30-year mortgages have lower monthly payments, but you will pay more interest than a 15-year mortgage The higher monthly payments on a 15-year mortgage make it more difficult to qualify for a 15-year mortgage.

If you are building a custom home or purchasing a home under construction in a new subdivision, you likely have several additional financing steps and options. A construction loan is a short-term, high-interest loan, typically used to cover the cost of building the home if you are building the home yourself or hiring a custom builder. Builder financing may be available if you are buying in a newly developed subdivision. Many large builders have partnerships with mortgage subsidiaries or mortgage companies that offer financing options to buyers. Still, it is advisable to look around for other lenders and compare loan terms, including origination fees and interest rates.

Even with all these options, you may be wondering: what about your peers and peers? That is a plausible question.

After all, many first-time homebuyers rely on gifts from family and friends. In our survey, just under one-fifth of respondents said they received money from family members to purchase a home. According to a 2019 report from the National Association of Realtors, 28% of buyers under the age of 28 relied on gifts of funds for their down payment. Overall, 12% of homebuyers received gifts.

It is important to note that this cannot be a loan (the lender does not want you to be overwhelmed), but rather unconditional money toward a down payment. The lender will require a "letter of gift" from a family member or friend to confirm that the funds are not a loan.

While this may not be feasible for all homebuyers, getting a little help from your rich uncle or grandparents could help bolster your down payment.

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