Buying a Home: The Missing Manual

Chapter 6. Finance Your Down Payment

The variety and number of fees you have to pay when you buy a home can set your head spinning. They run the gamut from your lender’s $35 credit-check fee to several hundred dollars for a home inspection to thousands of dollars in loan administration fees. But by far the biggest chunk of cash you need to come up with is the down payment, a percentage of your home’s purchase price—usually in the range of 3.5 to 20 percent.

For many homebuyers, coming up with the down payment is the biggest obstacle to buying a home. Unless you’re independently wealthy, you’ve had a recent windfall (an inheritance or a lucky horse, for example), or you’re selling a home in which you’ve built up some equity, you probably don’t have tens of thousands of dollars lying around to invest in a new home. This chapter helps you come up with your down payment. It starts off by explaining why lenders require such a hefty down payment in the first place, then moves on to strategies, both traditional and creative, for finding the money to put down on your new home.

Why a Down Payment?

You might wonder why lenders insist that you pour thousands of dollars of your own money into a home. After all, lenders make money from loans, so you’d think they’d want to give you as much cash as possible.

That’s true, but lenders also need assurance that you’ll repay the loan. To get that implied promise, they require you to have a personal financial stake in your house. From the lender’s point ...