Finding the down payment
Julie Garton-Good, GRI, DREI

You may want to take the home buying plunge, but do you wonder where the down payment is coming from? Don't panic, you're not alone. In fact, national statistics show that home buyers save for an average of 2.3 years before buying their first home.

So let's explore traditional as well as creative ways to find the down payment you need, and do it quickly and affordably.

The first step is simple: Make sure you talk to a Realtor or lender to estimate how much your down payment and closing costs will be. You may be pleasantly surprised to find that you need less money than you thought since many loans today require down payments of only three to five percent of the purchase price. Based on your income, debt load and current savings, the real estate professional can tell you approximately what you'll need and can also give you an idea of what to expect when you apply for a loan.

Obviously, the best type of down payment is your savings. Accumulating cash over a period of time is not only good discipline, but it shows the lender that you're capable of managing your finances and are not living beyond your means.

If you don't have a savings plan, start one. In fact, if you can open your savings account with the lender you'll eventually get the mortgage with, it's a great opportunity to build a good track record and rapport.

What if you don't have savings? Some buyers today use a convenient approach: CYD (call your Dad) or CYM (call your mom)! Getting gifts for down payments and closing costs is a great way to help fund your purchase. In fact, if a relative gives you a gift of 20% or more of the purchase price, you don't need any of your own money for the down payment! This can cut months, if not years, off delaying your first-home purchase.

What about borrowing money for the down payment from credit cards? While this may be legal (depending on the type of loan you're getting), it may not be advisable. A new debt means that you'll have to repay it, and that could hurt you financially when qualifying for a mortgage. Before you take this action, check with the mortgage lender first.

Don't forget that other real estate owned by you or your family can be a good source of funds. A second mortgage, an equity line of credit, or refinancing a property could free up sleeping equity and the interest might be tax deductible as well.

Perhaps you could free up cash by refinancing personal property you own. For example, you may have equity in a car, boat, motorcycle, or other item. Refinancing might also lower your interest rate and your monthly payments. But be careful--you'll be stringing out the payments and be paying more interest, so it's all a tradeoff. And since you may be adding more debt to your loan qualifying picture, make sure you consult your lender before taking this step.

One final possibility is to borrow against other financial assets like a life insurance policy, certificates of deposit, or securities. These can be yours, a relative's asset or those owned jointly with someone else.

There you have it--ideas to help make your down payment (and your home purchase) a reality!