Devise a Down-Payment Plan

If you're thinking about buying a house in the next year or two, you may wonder what you're getting into. News reports about the "mortgage meltdown" are shaking home buyers' confidence. Confusion and questions abound, especially for first-time buyers.

Among those questions might be: How big a down payment do I need? Where will I get the money?

Here are a few ideas about how to build your down payment:

• Build your savings. Save a certain sum every payday through payroll deduction or other automatic savings plan at your credit union.
• Get a second job for a year or two.
• Ask for family help. Anyone can give up to $12,000 per year to another person, without federal gift tax consequences for the giver or an income tax burden for the receiver.
• Borrow from family. Be sure you have a written, enforceable note. Follow the Internal Revenue Service requirements on the minimum interest rates the lender must charge.
• Share equity. Your parents could contribute all or part of the down payment, in return for a share in ownership of your home.
• Tap your IRA. A first-time home buyer can use up to $10,000 of IRA funds for a down payment, with no early-withdrawal penalties. But you may owe taxes.
• Borrow from your 401(k). Check with your employer to find out the rules for your plan. A note of caution: If you use money from your 401(k), you're losing the benefit of compounding on the money you've borrowed. This can mean thousands of dollars—or more—over the years that you're repaying the loan.
• Look into first-time buyer assistance programs. State and local programs exist in many areas. These can be hard to find; be prepared to do some digging.

In today's mortgage environment, good counsel is extremely important. Even if you're a year or more away from buying, sit down with a Harvard University Credit Union lender now to come up with a down-payment plan. Stop by or call today at 617-495-4460.