Documenting Your Assets – Verifying Your Down Payment
Borrowing to Come Up with a Down Payment
For the most part, you aren't allowed to borrow to come up with your down payment. However, there is an exception. If the loan is secured against some asset, you can borrow the funds.
For example, if you take out an equity line on your present house, you can use those funds to make the down payment on your next home. A lot of people do this when they intend to rent out their previous home. It also works in case you aren't certain of the housing market. Since equity lines are very inexpensive, it is a simple process to line one up before you put your own house on the market and begin looking for a new home. That would allow you to make a "non-contingent" offer, giving you more viability as a potential buyer.
As long as the loan is secured, you can borrow for your down payment. If you own a car free and clear, then get a loan from your credit union against the car, that is an acceptable source of funds. If you have a stock portfolio and borrow against it, that is also an acceptable source of funds.
Of course, the payment on the loan is counted as one of your obligations when calculating your debt-to-income ratios.
A cash advance against your credit cards is not a secured loan. Therefore, it is not an acceptable source of funds. Neither is a signature loan from your credit union. Neither is a loan from your friend or family member. The loan must be secured against some asset you own.
copyright 2000 by Terry Light and RealEstate ABC, modified 2002