Francis' Silicon Valley Real Estate corner...
Real estate information for the mid-peninsula of San
Francisco: the Silicon Valley.
Monday, June 17, 2013
Not enough money for your downpayment?
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
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