One of the biggest misconceptions of home buying? The 20% down payment. Here’s how to buy with a lot less down.
Buying your first home conjures up all kinds of warm and fuzzy emotions: pride, joy, contentment. But before you get to the good stuff, you’ve got to cobble together a down payment, a daunting sum if you follow the textbook advice to squirrel away 20% of a home’s cost.
Here are five creative ways to build your down-payment nest egg faster than you may have ever imagined.
1. Crowdsource Your Dream Home
You may have heard of people using sites like Kickstarter to fund creative projects like short films and concert tours. Well, who says you can’t crowdsource your first home? Forget the traditional registry, the fine china, and the 16-speed blender. Use 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.
2. Ask the Seller to Help (Really!)
When sellers want to a get a deal done quickly, they might be willing to assist buyers with the closing costs. Fewer closing costs = more money you can apply toward your deposit.
“They’re called seller concessions,” says Ray Rodriguez, regional mortgage sales manager for the New York metro area at TD Bank. Talk with your real estate agent. She might help you negotiate for something like 2% of the overall sales price in concessions to help with the closing costs.
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 banks have varying caps on concessions.
No matter where they net out, concessions must be part of the purchase contract.
3. Look into Government Options
The U.S. Department of Housing and Urban Development, or HUD, offers a number of homeownership programs, including assistance with down payment and closing costs. These are typically available for people who meet particular income or location requirements. 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.
For veterans, the VA will guarantee part of a home loan through commercial lenders. Often, there’s no down payment or private mortgage insurance required, and the program helps borrowers secure a competitive interest rate.
Some cities also offer homeownership help. “The city of Hartford has the HouseHartford Program that gives down payment assistance and closing cost assistance,” says Matthew Carbray, a certified financial planner with Ridgeline Financial Partners and Carbray Staunton Financial Planners in Avon, Conn. The program partners with lenders, real estate attorneys, and homebuyer counseling agencies and has helped 1,200 low-income families.
4. Check with Your Employer
Employer Assisted Housing (EAH) programs help connect low- to moderate-income workers with down payment assistance through their employer. In Pennsylvania, if you work for a participating EAH employer, you can apply for a loan of up to $8,000 for down payment and closing cost assistance. The loan is interest-free and borrowers have 10 years to pay it back.
Washington University in St. Louis offers forgivable loans to qualified employees who want to purchase housing in specific city neighborhoods. University employees receive the lesser of 5% of the purchase price or $6,000 toward down payment or closing costs.
Ask the human resources or benefits personnel at your employer if the company is part of an EAH program.
5. Take Advantage of Special Lender Programs
Finally, many lenders offer programs to help people buy a home with a small down payment. “I would say that the biggest misconception [of homebuying] is that you need 20% for the down payment of a house,” says Rodriguez. “There are a lot of programs out there that need a total of 3% or 3.5% down.”
FHA mortgages, for example, can require as little as 3.5%. But bear in mind that there are both upfront and monthly mortgage insurance payments. “The mortgage insurance could add another $300 to your monthly mortgage payment,” Rodriguez says.
Some lender programs go even further. TD Bank, for example, offers a 3% down payment with no mortgage insurance program, and other banks may have similar offerings. “Check with your regional bank,” Rodriguez says. “Maybe they have their own first-time buyer program.”
Not so daunting after all, is it? There’s actually a lot of help available to many first-time buyers who want to achieve their homeownership dreams. All you need to do is a little research — and start peeking at those home listings!
Investors are scouring real estate markets looking for low-priced homes, and they’re increasingly stepping on the toes of first-time buyers, who are hunting in the same price range. “The investor is starting to gobble up pretty much anything under $200,000,” Dennis Cisterna, chief revenue officer for Investability Real Estate, which markets rental homes, told The Dallas Morning News. “We are not adding any new supply to the market to serve that first-time home buyer.”
Housing inventories are at the lowest level in 30 years, and the shortages are most pronounced in the low and middle price ranges. “We are losing inventory at a record pace and in the segment of the market with the most demand,” says Javier Vivas, a realtor.com® analyst.
Investors comprised 33 percent of all single-family and condo sales in 2016, the highest percentage ever recorded by real estate data firm ATTOM Data Solutions. “This is setting the stage for a boom in single-family rentals,” says Daren Blomquist, an economist at ATTOM.
But while institutional investors dominated the rental housing market after the housing crash, they’re increasingly being priced out of markets such as Denver and Dallas. Smaller mom-and-pop investors are now stepping in to take their place. “The investors are competing for those starter homes,” Blomquist says, adding that 61 percent of investor purchases are for homes between 1,000 and 2,000 square feet.
Investors also tend to pay cash, which is making it difficult for first-time buyers who need financing to compete. About 19 million single-family homes in the U.S. are now owned by investors, according to ATTOM Data Solutions.
Source: “First-Time Buyers Hunting Affordable Housing are up Against Property Investors … and Losing,” The Dallas Morning News (June 16, 2017)
Shared from: DAILY REAL ESTATE NEWS
This article is great as it describes the fact that First Time Homebuyers are being forced out of the market. This is due largely because housing values are increasing so significantly and buyer’s aren’t able to qualify for the average sale price of homes in the Front Range area. We are finding that an FHA loan or even a low down-payment conventional financed loan cannot compete against an investor cash offer who will use the home as a rental property. I am seeing a large percentage of investors taking their money out of their stock market investment portfolios and reinvesting in real estate.
Buying your first house is a big deal. Of course it’s also a little intimidating. If you’re like most people, you’ll probably need some guidance along the way — and you’ll definitely want an agent looking out for your greatest interests. I would be honored to assist you with purchasing your first house.
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