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Because down payments can be relatively high, you’ll need to have a sizable reserve of money. There are a number of ways to come up with cash, but remember to negotiate first when you put down a payment. Just offer a small amount and see what the owner can do for you. If bargaining doesn’t work, you may want to consider the following options:
- Save, Save, Save! – There’s nothing like having a large chunk of change to make a down payment. The larger your down payment is, the smaller your interest rates will be and the larger your loans might be. As Latin dad says, “Anyone can spend money but few can save.”
- Cash-Out Financing – You can refinance an existing mortgage for more than you currently owe, essentially “replacing” your first mortgage rather than getting an additional mortgage, as described next.
- Second Mortgage – This is an additional mortgage taken out on top of the first. Usually interest rates are higher, and the financing period is much shorter in length.
- Credit Cards – If you have a high credit limit, you might be able to charge the down payment on one or more credit cards. This is when getting your balance down to zero really comes in handy.
- Trade Services – Maybe you can save some money if you’re able to offer a particular service instead of money. For example, if you’re a mechanic or an electrician, offer your labor in return for a lower down payment. In a sense, this could be considered bargaining, but it’s really not, because you’re offering labor that everyone else must pay for.
- Sweat Equity – This is a term used to describe the value that is added to a piece of property by the buyer. This added value is achieved through profitable renovations carried out by the buyers, hence the name “sweat equity.”
- Sell Assets – You might not want to sell that grand piano or a piece of valuable jewelry, but if you really want (or need) that piece of property, this is what you might have to do to earn more cash.
- Pledged Collateral – Sometimes you can enter an agreement whereby you pledge a valuable belonging, such as a plot of land, as collateral if you default on a loan.
- Student Loans – If you’re a student, you can take out student loans and use that money as part of the down payment.
You could also tap into the following reserves:
- Retirement Funds
- Personal Savings
- Checking Account
- CDs
- Mutual Funds
If, for whatever reason, you do not wish to employ any of the aforementioned tactics, you might want to consider enlisting partners, especially if there's a deal that's too go to pass up. But remember, you need to form this business plan with quality partners.
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