Six Ways to Get a Fast Downpayment for Your Home

Since we're giving away copies of The Automatic Millionaire Homeowner by David Bach this week, I thought I'd post a bit about the key parts of the book (and why I liked it -- fyi, here's my review).

Today I wanted to cover his list of six ways to get a downpayment for your home. David's list:

1. Borrow the downpayment from the bank.
2. Borrow the downpayment from a relative.
3. Borrow the downpayment from your retirement account.
4. Take advantage of the "home-buyer's loophole" (other ways you can take money out of your retirement account).
5. Make a radical life change (downsize your major spending).
6. Find your latte factor and double latte factor (cut out minor spending until it adds up).

Here are my thoughts on each of these:

1. I HATE this idea. Too much debt. It's contrary to my formula for buying a house.

2. It's better, but borrowing from a relative is always dicey. You could always hope a relative would give you the money (like Jim's parents did) but you still may want to plan on paying it back (like he is).

3. Hate this one too. Look at #1 on the list of the 12 biggest money mistakes.

4. Hate it less, but still don't like it. I doubt many people will ever pay the money back.

5. Now we're talking!!!! Sacrifice for a year or so and you'll be there!!

6. I'm loving this too. If you need some ideas on how to save, check out Free Money Finance's Saving Money category.

Comments

[Eric]

This weekend I happened to be reading a book about home buying since I'm planning to buy my first home in 6 to 9 months. Once tidbit I came across was that lenders will not give you a home loan if you borrow the money for the downpayment. Using a gift from a friend or relative can also be a problem so the suggestion was to arrange to receive the gift several months in advance.

In these days of no downpayment mortgages this information may not apply so I'm interested in people's comments.

And thankfully, I won't need to borrow but my parents might be interested in helping me with gift money. Again, just looking for comments or advice from others.

Thanks, Eric

[LAMoneyGuy]

All of a sudden, I think David Bach bugs me more than Robert Kiyosaki. At least Kiyosaki is openly high on the risk scale, encouraging people to start their own business instead of investing in mutual funds.

David Bach seems to come from very conservative advice. "The Latte Factor" and other bits in his books are about small ways to cut costs, and find ways to pay yourself first.

Then he makes a deal with Wells Fargo, writes a book, and all of a sudden we should be doing 100% financing, borrowing large sums from relatives, or take early withdrawals from our retirement accounts? He went from The Wealthy Barber to Carlton Sheets!

[jayfer]

About 5 years ago, my parents gave me a 'gift' equal to the amount of 10% of my down payment 2 days before the closing. They had to sign a form that the mortgage lender provided me with, indicating that the money was a gift, not a loan. The transaction went smoothly, without a hitch. I've since saved up enough money to repay my parents, but they told me to just invest it for them and hold onto it until they needed it. And that's what I've done.

[Flexo]

I'm at the point where many of my friends have bought their first houses, usually with mucho help from the parents. In some ways, I'm jealous. Their parents help them out but they get the benefit of appreciation of the property. I won't be as lucky... I'll be figuring out how to afford a home on my own or with my gf.

[Brian]

I am quite turned off by Bach's advice. His book "The Automatic Millionaire" was, as some other posters mentioned in their comments, conservative. He seems to have changed his thinking quite a bit.

I like numbers 5 and 6. We have our first home, but we are working to get a bigger home now that we are married and we are spending only when necessary and stacking away every penny that we can. I think it's the best way. I couldn't possibly imagine borrowing from my 401(k) or borrowing 100%.