In Pursuit Of a Down Payment

Investments Can Pay Off

Selling stocks, bonds or mutual funds can also be a good way to raise a down payment, financial advisers said. But the proceeds could be taxable. Borrowing against the investment portfolio might be a better alternative, financial advisers said.

"If you sell things, there will be tax implications," said Evans of Merrill Lynch. "You want to get specific guidance on that."

Withdrawing from an IRA, or individual retirement account, is also an option. The IRS does not allow borrowing from an IRA, but a first-time home buyer can make a one-time, penalty-free withdrawal of up to $10,000. The downside: The borrower might owe tax, depending on the type of IRA.

A prospective homeowner might also want to consider borrowing from a cash-value life insurance policy, advisers and lenders said. There's no tax on loan proceeds. But they pointed out that most first-time home buyers don't have much money in their policies.

Another route would be to get a gift from a relative or friend. The lender will generally ask for a letter from that person saying that the money is a gift, not a loan that will have to repaid. According to the National Association of Realtors' 2006 survey of home buyers and sellers, 22 percent of first-time home buyers opted to do this. Only 3 percent of repeat buyers did; most of them used proceeds from the sale of one residence to pay for the next one.

If you're trying to get a conforming loan, though, you typically cannot rely on just a gift. In that case, the borrower still has to prove that 5 percent of the money going into the purchase comes from his or her assets, said Kevin Connelly, vice president of BB&T. That is, unless your relatives are really generous: Lenders generally waive the 5 percent requirement if the gift covers 20 percent of the purchase price, Connelly said.

Borrowers should also research down-payment-assistance programs. There are many, some run by government agencies, some by nonprofit organizations, churches and other community groups. Many employers also offer help.

Jeff Colacurcio and his wife, Lauren, were able to buy a $485,000 four-bedroom house in Falls Church through a program offered by his employer, Fannie Mae. He has worked as a financial analyst for the company for two years. The couple made a 12 percent down payment, of which more than half came from the Fannie Mae program. The rest came from the couple's savings.

If it hadn't been for the program, the Colacurcios would still have been able to afford the house, but they would have drained all their savings.

"We had a cushion that we wouldn't have had left over that allowed us to keep the savings and do the things to the home that we wanted to do," Colacurcio said.

If all else fails, there are other creative ways to come up with down payments. Pull out that vintage Gucci purse and sell it on eBay. Sell your bike. Sell your car.

Some advisers and lenders said that if a prospective homeowner has to go to great lengths to come up with money, maybe it's best to wait until he or she can save enough money the old-fashioned way. Or maybe buying a fixer-upper rather than the dream home would be the way to go.

"It doesn't have to be a McMansion," said Evans of Merrill Lynch. "Homeownership should be within your budget."

But for Darrell Perry and his wife, Delia Goncalves-Perry, becoming homeowners felt like the natural next step after getting married.

They scrimped and saved, dry-cleaning only the essentials, giving up expensive coffee, eating in and not buying new sneakers. A lawyer who performs in a hip-hop band in his spare time, Perry also set aside all the money he received from the sale of his group's CDs.

Then came their August wedding. The money poured in -- about $10,000. "People had the intuition: They don't need dishes; they could use money," he said.

All in all, the couple ended up with $26,000 for a down payment. They recently were outbid on a house that sold for $500,000. Their search continues.