Having Someone Else Make Down Payment

Vickie and Peter Berg were starting to think they just weren’t meant to be homeowners.

“First, we couldn’t get a down payment together,” said Vickie Berg, a planning consultant and researcher. “When we finally got the cash, we couldn’t get a loan. The condo we wanted was on leased land, so the lender wanted a 20% down payment and we just had 10%.

“We started saving again . . . (but) every time we thought we might be getting close to having enough money, we’d get hit with taxes.”

Then she saw a newspaper ad for CoEquity Corp., a Costa Mesa firm that packages equity-sharing deals.

“We called them up and then went to one of their meetings,” Vickie Berg said. “It was hard to believe that somebody else would make the down payment for us, but it was true.”

The Bergs started touring local homes with a CoEquity real estate broker. They settled on a $214,000, three-bedroom townhouse in Irvine.

CoEquity then matched the Bergs up with a private investor, who provided a 10% down payment of $21,400 and also paid half of the roughly $19,000 in closing costs that included CoEquity’s fee. The Bergs paid the other half of the closing costs and fees.

With the investor’s name also on the loan application, the Bergs had no trouble getting a lender to finance the deal.

The Bergs live in the home, are responsible for making the monthly mortgage payment of about $1,700, and also pay the investor about $360 a month in interest on his money. Although their total monthly payments top $2,000, Vickie notes that the couple gets to take all the tax deductions for the property--which makes the after-tax cost of home ownership much lower.

The Bergs have the option of buying the investor out at the end of three years; if they don’t want to, the investor can buy them out.

If the two instead agree to sell the property, each party will get back its initial investment and then split the profits 50-50.

The Bergs moved into their handsome new home last month. “Everything has worked out beautifully,” said Vickie Berg. “We’ve already recommended equity-sharing to three or four of our friends.”