No mortgage down payment tips.

Today is a frustrating time for renters who want to buy homes
but who haven't saved much for down payments. Mortgage
rates are on the rise, houses aren't getting cheaper and it
seems like time is running out.

"It would take me at least another year or two to save another
$10,000 to $15,000, and, frankly, I want to purchase a house
before the costs are out of reach," e-mails a reader from
Long Island, where the median house price rose more than
20 percent last year.

He has more options than he realizes. There are myriad
ways to leap the down-payment hurdle. Some strategies are
for people who have some money saved up somewhere,
and other strategies are for people who are practically broke.

It has been a long time since home buyers were required to
come up with 20 percent down. Some lenders will lend 100
percent of the purchase price or even 103 percent. More
commonly, lenders underwrite mortgages with 3 percent or 5
percent down. The question becomes, if you can't qualify for
a zero down mortgage: How do you come up with that 3 to 5
percent?

Dig into the nest egg?

You could tap your retirement savings, either borrowing from
a 401(k) account or withdrawing money early from an
Individual Retirement Account.

When you borrow from your 401(k), you repay the loan over
five or more years, with interest. Most 401(k) plans will let you
borrow up to $50,000 of your balance or 50 percent,
whichever is less.

One problem with borrowing against your 401(k) is that you
will have to repay the loan within 90 days of losing your job or
quitting. That can make a layoff even more stressful, and can
serve as a pair of golden handcuffs that chain you to your job,
even if a better one comes along. If you can't repay the loan in
time, you have to pay penalties and taxes on an early
disbursement.

An advantage of borrowing against a 401(k) is that it doesn't
count as debt when lenders assess your qualifications for a
loan.

Withdrawing money from an IRA can be a good strategy for
first-time home buyers You pay taxes on the disbursement,
but a 10-percent early-withdrawal penalty is waived if you use
the money to buy your first home. Some advisers warn
against removing money from a retirement nest egg.

But, in the long run, you'll probably have more appreciation
on the money invested in real estate. Or, maybe not. There
are no hard-and-fast rules.

Borrowing against retirement savings is fine for people who
have money set aside for their golden years. But what about
people who have virtually no money in the bank?

Gifts from family and friends

Some loan programs allow borrowers to use gift money to
make down payments. Generally, the gifts have to come from
family members, spouses or domestic partners, or
nonprofits.

In fact, an entire industry of nonprofit organizations has
sprung up to fill this need. Most of the time, the home's seller
"donates" 3 percent of the home's sale price to the nonprofit,
plus a fee. The nonprofit then gives the buyer that 3 percent
at closing, with the money serving as the down payment.
Almost all loans using this approach are insured by the
Federal Housing Administration.

Jason and Rebecca Postlethwait are using such a program
to buy a house in Baltimore. When their landlord notified
them that the monthly rent on their townhouse was going
from $900 a month to $1,100, they decided to go house-
hunting, even though they had some past credit problems as
a result of lost jobs, and even though they had little saved for
a down payment.

"We said, 'There's got to be a program for us,'" Jason
Postlethwait says.

Their mortgage broker told them about the Home Solution
program, in which the seller ultimately contributes 3 percent
for the down payment. Their monthly house payment will be
less than the $1,100 they would have spent to continue
renting the townhouse.

Help for those who need it

Another down-payment option is to take advantage of
programs run by nonprofits to help low- to moderate-income
people buy their own homes. These programs are of all
sizes and kinds. Some are run by community development
corporations that fix up abandoned houses in blighted
neighborhoods, then team up with lenders that offer low- or
no-money-down loans to qualified buyers. Habitat for
Humanity requires buyers to contribute "sweat equity" by
working on their and other people's homes.

Most states have housing finance agencies that offer special
loan programs for low- to moderate-income buyers. Fannie
Mae, the biggest buyer of mortgages, offers loans through
housing finance agencies that require down payments of as
little as 1 percent or $500, whichever is less.

No-down and low-down

No- and low-down payment loans can have the disadvantage
of requiring costly mortgage insurance. You can avoid
mortgage insurance by getting a "piggyback loan"; a second
loan that piggybacks on top of a primary mortgage, or what is
often called an "80/20 combo".

For example, you get a primary mortgage for 80 percent of
the home's price, and a higher-interest second loan for 20
percent of the price... both loans will be offered by the same
lender.

The payments on the second mortgage roughly equal what
would have been the cost of mortgage insurance, but you
can usually deduct the interest expense on your income
taxes.

Piggyback loans have zoomed in popularity in the past few
years and are "kind of normal" nowadays.

Can you say 'susu'?

For something exotic, there's another unusual option -- susu,
a method of saving money that can be found in some African
and Caribbean cultures.

A susu savings plan consists of a group of people who pool
their money and distribute it among themselves periodically,
one by one. For example, a dozen people might contribute
$1,000 each into the pool every month for a year. In the first
month, one person gets $12,000. The next month, the next
person gets $12,000, and so on. At the end of the year, each
person has contributed $12,000 and received $12,000.

In a way, it's forced savings, because the susu system uses
peer pressure to compel people to save.