During the course of not buying a new home, we went of course through the whole experience of figuring out how to pay for it.

So, first question: do you have $35,000 to $50,000 lying around in the bank? Yes? Then you’re good to go on a 10% mortgage for a home in the $350,000 – $500,000 range where most of the nice homes in Tucson go (you can spend a lot or a lot less, but just sayin’). Want a conforming loan with 20% down, then double that.

Ok, so you don’t have that kind of change just sitting there in your rainy day fund. What’s next? Assuming you already own, a home equity loan would be in order to come up with the down payment. Most places do equity loans to a LTV of 80% on current value. So to come up with $35,000 you’d need a home worth $35,000 more than that 80%, or, as an example, for a home assessed at $450,000, you’d need to owe no more than $325,000 to be able to get a $35,000 home equity loan. Some credit unions do 85% LTV, so the numbers would then be owing no more than $347,500 on that $450,000 home to get to $35,000.

What’s next? Have a rich uncle give you the cash. Of course, if you need $35,000 then that rich uncle would owe taxes on the $20,000 above the piece that is tax-free ($15,000). You could offer to pay him back all of it, including the tax part when you sell your home.

Next?  You could put your own home on the market, sell it, then determine what you then have on hand to buy a new home for yourself. Of course, you then have to try to coordinate a sell and a buy — pretty difficult, and almost no one with take a sale as a contingency for a buy — or sell, move in to temporary quarters, moving all your stuff into other temporary quarters, then buy, then move again. I’m sure you can understand why my wife absolutely would not go that route.

Next? Assuming you have enough in your 401(k) to cover the down, you could take it out of there, and assume the tax hit (ouch!).

Next? Get one (or more, there are after all two of you) signature loans. These are unsecured, run about 7% adjustable for six years, and go up to about $50,000. Let’s assume you each get one at $35,000 for a total of $70,000 which would cover your 20% on that $350,000 home.

Now, here’s where it gets fun: you now have your signature loans and learn that you can’t use this money for a down: the folks that give you a mortgage won’t let you borrow the down payment. So, now you take the down out of your 401(k). You purchase the home. You use your signature loans to pay back your 401(k). As long as you pay it back within 60 days, there are no tax penalties. You put your home on the market, and pay back your signature loans when your house sells. Of course you need to be sure there are no pre-payment penalties on the signature loan (usually the case), but it’s a pretty slick game.

Since we didn’t buy the home, we didn’t do this, but we did figure out that this was how to make the game work. If we go ahead and remodel, we’ll probably do a combination of signature loans and withdrawals from retirement spread over a couple of years. Maybe a refinance instead, but banks pretty much don’t want to give you a loan for less than 20% down, so you’re back to the same issue as with an equity loan (or worse).

Long story short: property is illiquid, 401(k)’s are expensive if you take a lot out at once, signature loans are OK for a while (kind of like a car payment), but you can’t get a lot out of one, and what you pay in interest isn’t deductible.

And if your financial advisor tells you, you need cash in hand for rainy days or to cover cash flow, s/he’s right.