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Step 1: Decision to Buy

Tips to Get the Down Payment
Many homebuyers spend several years trying to save for a down payment. During the last seven years, the housing market has seen double-digit annual appreciation rates. This can seem frustrating, as the homes get more and more expensive during the down-payment saving process. Sometimes it feels like you never catch up.

Although it is prudent to use a 20% (of the purchase price) down payment, there are many examples where this thinking can cost a buyer a lot of money. For instance, if you continue to rent for an extra year to save for the large down payment, the real estate market may have increased the price of that home by 10% or more. On a $500,000 home, this means the buyer has to pay $50,000 more because they waited. In addition, significant tax reductions are lost during the extra rental year.

If you want to expedite your path to home ownership here are some creative ways to finance your purchase:
  • Use a home equity line second mortgage. Many borrowers with good credit can couple a traditional 80% mortgage with an interest only home equity line at or near the prime rate with as little as 5% down. This also avoids mortgage insurance costs and provides a much better interest rate than risky low down loans.


  • Borrow from your 401k or IRA. IRA funds can typically be rolled over for 60 days. This will allow you to close the transaction and pay back your IRA later to avoid taxes and penalties. Some 401k plans allow you to borrow money from yourself to buy a home. Although many financial planners frown at early withdrawals, first time homebuyers can avoid the 10% penalty for up to $10,000 if the funds are used to buy a home. If the market is going up, the tax savings and property appreciation more than justify paying the extra tax.


  • Use funds from relatives.
Talk to a good mortgage broker or buyer agent about the financial strategies best suited for your situation.