Down Payment Options For First Time Home Buyers

This Article Is About The Down Payment Options For First Time Home Buyers

Most homebuyers can easily afford the monthly payment on a home purchase. However, most potential homebuyers have a hard time coming up with the down payment and/or closing costs. However, the down payment can be gifted by family members. Closing costs can be covered with a seller concession and/or lender credit. In this article, we will discuss and cover the down payment options for first-time homebuyers.

Credit And Down Payment Requirements For Homebuyers

What are the loan and down payment requirements for home buyers

Do you have good credit and good income but not enough money in the bank for a down payment on a new home purchase? Well, you are not alone. There are some obvious, semi-obvious, and some not so obvious solutions to this problem.

Consulting With A Lender

Once your lender has gone over your situation in detail and started the qualifying process with you. They should be able to tell you what your “bottom line” or “drive out” amount will be. Hopefully, they have gone over your ability to qualify for traditionally less money down loan options like VA, USDA, FHA, and Conventional 3% down payment options. There are lots of nuances with each of those loan types so make sure you are working with a person and company that offers each.

But if any careful analysis you are still short of funds we suggest these possible options.

Strategies On Down Payment Options

There are various strategies in down payment options for first time home buyers:

Save it, yes, this is the obvious answer.

  • This, of course, takes more time but heck even a few hundred dollars a month can add up

Borrow it from 401k.

  • Most plans allow you to borrower against up to at least half of the value of your 401k
  • You pay yourself back via your company payroll and there is no tax early withdrawal penalties for doing this
  • Depending on the lender and program the repayment of the 401k loan may not be used in debt to income calculations

Put your hat in hand and ask your parents and/or siblings for a gift.

  • Yes, you may need to name your firstborn for the giver but this is an often-overlooked option
  • Funds do need to be tracked from giver to receiver and a Gift Letter will be required
  • But you might be surprised how getting a gift from the parents to help you move into your own home might be easier to receive than borrowing their car on that first date years ago

Other Closing Costs And Down Payment Options For First Time Home Buyers

What are the other closing costs and down payment options for first time home buyers

Ask the seller to cover your costs and or prepaid insurance, interest, and tax amounts.

  • Again, depending on the loan and down payment amount the seller can cover up to all of your closing costs and prepaid
  • They cannot contribute to your down payment but this is a very common option for FHA and VA loans
  • Of course, you will need to ask for this seller concession when you make your initial offer for the home but often a slightly higher offer price with seller concessions towards closing costs will be more attractive than a lower price offer without one

These are often written into contracts as “Seller to pay up to X% of the purchase price towards buyers closing costs and points”.

Lender Credit Towards Closing Costs

Ask the lender to cover some of the costs.

  • Lenders are paid based on the interest rate on the loan
  • The higher the rate the borrower receives the more $ the lender makes
  • Most lenders have set percentages they want to make on each loan size and type
  • If the current rate is 5% and you accept a rate of 5.5% the lender then has some $ available to credit back to you at closing

Not a lot of $ available but a half % in rate can get you about 1% of the loan amount in most cases.

Realtors Can Help Cover Closing Costs

Ask the Realtor(s) to cover some of the costs.

  • Not always an option if they have taken a smaller cut, to begin with, or if they spent the last 50 weekends driving you around to every house for sale in the county (which is not a good thing to do to a Realtor)
  • Like the lender, they aren’t going to cover it all but sometimes there is an option for a little help

Sell an asset.

  • Got an old baseball card collection?
  • Barbie Doll Collection?
  • Antique furniture in the attic?
  • An old car you plan on refurbishing when you retire?
  • Sell it! keep track of the transaction and show proof you own it free and clear, to begin with (even photos can work).

As always, please feel free to contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response if we can help you with your mortgage needs. Or email us at [email protected] We are licensed in most states and are available 7 days a week.

Qualifying For Mortgage With Direct Lender With No Overlays

How to qualify for a mortgage with a direct lender without overlays

Over 75% of our borrowers are folks who either got denied at other lenders or are going through stress with their mortgage process. Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conforming loans. We are also experts on alternative financing such as non-QM loans and bank statement mortgages for self-employed borrowers. Our team of professionals has been in the banking industry for almost three decades. Unlike FDIC Banks, Gustan Cho Associates has zero lender overlays. We do loans banks cannot do.

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