Not enough money for
a downpayment?
Let’s imagine that
you really, really want to purchase a home, you have the income to do it, and
you’re ready, willing and able (all 3 conditions that as Realtors we always
check for). But there is a little problem:
you do not have enough money for the downpayment.
The typical options
are: - to get some gift money (it’s got to be from a relative to be acceptable by
the bank making the big loan), - or get a second, in the form of an equity line
of credit (just making their come back now), - or win at the lotto...
There is however an
other option, that I have personally never seen used, but that I just read about and is worth
mentioning:
REX HomeBuyer, a
form of shared appreciation (or depreciation).
The principle of
this option is that a group of investors get together, and loan you money to
help with the downpayment on our purchase.
If the property has
appreciated when you sell it, they share in the profit.
If the property has
depreciated when you sell it, they share in the loss.
This is a good
option for people who need some help with a downpayment, and feel shy going it alone on their purchase; it
is reassuring in a way to have someone else share in the risks of the market variations. And all the while you own the house the
advantage is that you have used the downpayment money to actually buy a home and
live in it, - and for a lot cheaper than if you had to borrow the whole amount. (remember that when you borrow a 90% amount on
a house, you have to pay PMI –Private Mortgage insurance – and this is not
cheap: about 1 to 1.5% of the amount you pay, every time you pay anything it seems).
In that option, you
do not pay interest on the money that made the rest of the downpayment. It is like having a friend co-buy with you
but without the hassle to draw a complicated “separation agreement” for when
you want to be on your own later. Here it is done from the start, in a clear way.
More on this interesting
idea on this Los Angeles times article by Lew Sichelman.
As always with financial arrangements, run this by an advisor or an attorney if you are considering trying it...
Francis
