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
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
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.
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