Raising Money for the Down Payment

EVEN IF you are struggling to come up with a modest down payment, you can still buy a home. Do not automatically assume you have to raise 10% to 20% of the purchase price in cash.

If you have served with the armed forces, you may be able to get a mortgage insured by the Department of Veterans Affairs for 100% of the cost of the house or apartment and pay nothing. You do not have to be a vet to qualify for a Federal Housing Administration insured loan that can cover up to 95% of the purchase price. You can apply for VA and FHA loans at banks and savings and loan associations.

As mentioned before, you also can qualify for a 95% loan without government backing if you take out private mortgage insurance. A lender will be most likely to insure you if your credit rating is impeccable. A good repayment record on auto and student loans is essential.

To raise cash for a down payment, consider selling off your own IRA. YOU will have to pay ordinary income tax and a 10% penalty on the money you withdraw early from your IRA, but these costs may be outweighed by the tax deductions the house will generate.

If your employer allows it, you can borrow against your contributions in a corporate profit sharing program or a salary reduction plan. You will be charged interest at a rate that is often lower than a bank would charge.

If your parents want to help you out, they can give $40,000 each year to a married child and spouse without having to pay federal gift taxes. In return for making the down payment, your parents could become co owners of the house. That way you could buy a more expensive place than you could otherwise afford, and your folks might qualify for significant tax breaks.

The seller of the house you want to buy also can be the source of the down payment. One possibility to explore with him or her is renting the house for a period with an option to buy. A portion of your rent could go to building a down payment.