I actually don’t recommend to use credit to create your cash down. If you can’t save money, you should not even think about buying a house (it’s only looking for trouble).

With current mortgage conditions, I know that banks won’t be too hot about a client who borrowed his cash down. By doing this little trick, most bankers won’t make the link between the line of credit and the money market fund

The nuts and bolts of the plan will work, assuming the debt ratios work. (as you mentioned) As well, I like how you’ve outlined the dangers of borrowing the down payment.

Here’s the problem with your post. The fact is, the lender doesn’t give two craps how long you’ve had the down payment in a money market account. The fact remains, it was borrowed and will be treated that way. It’ll be treated the same as if you borrowed it 5 minutes ago. The only way that it won’t be is if you don’t disclose it (which is mortgage fraud and totally not recommended)

Your response to this is going to be that because of having “cash” down, your banker won’t ask any questions, and you’ll be good to go. This is wrong. Your banker would want to know what exactly you’re using the LoC for. And the fact still remains, they don’t care if it’s borrowed.

I don’t want to kill the plan totally. Borrowing the down payment is a perfectly legitimate option and as long as your credit is good and the income ratios still work, you can still very easily finance your down payment. There’s just no need to pay interest on it for 3 months.

I think that, generally, people shouldn’t finance their down payments. If you’re a young professional who doesn’t have any savings, maybe you should take a little time to get your financial act together. There’s a reason why the zero down mortgage products were eliminated.

Plus, you missed a wayyyyyy better option for most first time buyers. Rather than getting a line of credit, they should just hit up their parents for the loan. Chances are, they’ll get a much better interest rate (on mom and dad’s loan), mom and dad are going to be more understanding if junior is a little short every now and again and they can get their parents to sign a gift letter, meaning that the payments on the parental loan won’t be counted towards debt ratios.

Yeah, I realize that technically, not disclosing the parental loan is mortgage fraud too. Lenders know the game, and they’re okay with it.

So in summary, financing the down payment is ok. There’s no need to try to hide it.