We have stock that has significant value and we think its price will increase. How can we come up with a down payment without selling our shares?
This is an increasingly common and delightful problem. A home purchase typically requires either a sizable down payment by the home buyer, say 20%, or some form of backing by a third party, perhaps the FHA, VA, or a private mortgage insurance (PMI) company to buy with less down. With a third party, loans with 15, 10, 5, and 3% and even nothing down are possible. So, one choice is to look for financing with as little down as possible. A second choice is to look at RAM financing, a reserve account mortgage.
With a RAM loan, you might get 100% financing. At the same time, you would deposit an asset with the lender; say the stock you do not want to sell. The lender then holds onto the stock until the property has a certain level of equity caused loan amortization (reducing the size of the loan through payments) and, hopefully, increasing property values. The borrower has 100% financing.
RAM financing raises important questions: Who gets the interest on the account? What if the value of the securities declines? How is the new value for the property determined? What is the monthly payment? Is all interest deductible? Mortgage lenders and securities brokers can provide additional information.