LEARN ABOUT ALTERNATIVE LOAN PROGRAMS
There is a common misconception among first time home buyers that you need 20% of the home's value for a down payment. There are many programs out there to help people buy a home with a small down payment, some of which only require 3 to 3.5% down. For example, FHA mortgages can require as little as $7000 down on a $200,000 home. The downside of going with a lower down payment is the addition of mortgage insurance which is the lender's way of covering their risk with the smaller down payment. Mortgage insurance (PMI) will be added to your mortgage payment, but can be dropped after your balance due on your mortgage falls below 75% to 80% of your homes value, depending on the program.
Some lender programs go even further, offering a 3% down payment with no mortgage insurance for first home buyers. The best way to begin is to check with your regional bank or lender to know what options are available for you.
You may have heard of people using sites like Kickstarter to fund creative projects and start up businesses. Why not use a similar option to crowdsource your first home? Check out sites like Feather the Nest and Hatch My House to raise your down payment. Hatch My House says it’s helped Americans raise more than $2 million for down payments. Getting married? Register for down payment assistance instead of traditional gifts.
ASK THE SELLER
In a tight market like we are experiencing in Columbus, asking the seller for down payment assistance may be tougher than in other markets, however if you have a great offer in all other ways-the seller may be open to it. When sellers want to a sell quickly, they might be willing to assist you with the closing costs. Saving money on closing costs means you have more to put down on the house.
Let your agent negotiate the terms and the percentage of closing costs the sellers are willing to pay. There are limits on concessions depending on the type of mortgage you get. For FHA mortgages, the cap is 6% of the sale price. For Fannie Mae-guaranteed loans, the caps vary between 3% and 9%, depending on the ratio between how much you put down and the amount you finance. Individual bnks have varying caps on concessions
LOOK INTO GOVERNMENT OPTIONS
Believe it or not, the government provides many options for down payment and closing cost assistance based on income level, profession and veteran status. The U.S. Department of Housing and Urban Development (HUD) offers a number of programs, typically available for people who meet particular income or location requirement. HUD has a list of links by state that direct you to the appropriate page for information about your state.
HUD offers help based on profession as well. If you’re a law enforcement officer, firefighter, teacher, or EMT, you may be eligible under its Good Neighbor Next Door Sales Program for a 50% discount on a house’s HUD-appraised value in “revitalization areas.” Those areas are designated by Congress for homeownership opportunities. And if you qualify for an FHA-insured mortgage under this program, the down payment is only $100; you can even finance the closing costs.
If you just can't come up with your down payment on your own, it doesn't mean that you can't live your dream and buy a home. There are many options available for borrowing the funds you need.
Personal loan. A bank might be willing to make you a personal loan to use toward your down payment. You will need good to excellent credit to qualify for an unsecured loan, so know your credit score and be diligent about keeping your score or above.
401k or IRA assets. If you have retirement savings in a 401k or IRA, you may be able to borrow up to the lesser of $50,000 or 50 percent of your 401k plan balance, and first-time homebuyers may qualify for an exemption of up to $10,000 from early IRA withdrawal penalties. Just be advised that some 401k plans require the immediate repayment of loans if you leave your current employer.
Borrowing from family If a bank won't give you a loan, you might have a relative who is willing to do so. This arrangement may be formal or informal, but you might want to document the repayment and interest terms in order to qualify for the mortgage interest deduction.
Need more assistance and advice? Call, text, email or contact me on social media!
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