Is home ownership feeling out of reach because saving for the “required” 20% for a down payment seems unattainable?
Here are five ways to either fund that 20% or reduce the amount of the down payment and still get approved for a loan.
1. Crowdfund your down payment with a gift registry
Options for gift registries have evolved over the years. Wedding registries gifts now include not only household products but honeymoons and vacations. The average gift registry is worth about $5,000 so think outside of the box ask your family to friends for a gift that helps you realize your dream of home ownership. Visit Feather The Nest for a convenient way start funding your down payment through a gift registry.
Word of advice: lenders can be picky about where you get your down payment. Gifts from family and friends are usually acceptable, but you may have to account for where the money came from when you apply for a loan, so you’ll need to document every donation.
2. Ask the seller to help
To help maximize your down payment dollars, ask the seller to cover all or most of your closing (or settlement ) costs. Most commonly referred to as seller concessions they are a legal way to allow you to roll the closing costs of your transaction into your loan. You will have to negotiate a price with the seller that include the concessions. As long as the home will appraise, it’s fine to go over the sales price. Remember, however, that you will still have to meet your lenders’ debt-to-income ratio, usual about 45% or less, for approval.
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. Additionally, individual banks have varying caps on concessions.
No matter where they net out, concessions must be part of the purchase contract.
3. See if you are eligible for government assistance
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 certain income or location requirements. HUD has a list of links by state that direct you to the appropriate page for information about your state. Visit HUD.gov, Florida.
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 (GNND) 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.
Florida’s State Housing Initiatives Partnership (SHIP) serves very low, low and moderate income families. Eligible buyers can receive help with low-interest rate loans, down payments and closing costs. Find a SHIP office near you or check out the First Time Homebuyer Wizard (Spanish version here).
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.
4. Check with Your Employer
Employer Assisted Housing (EAH) programs help connect low- to moderate-income workers with down payment assistance through your employer. Ask the human resources or benefits personnel at your employer if the company is part of an EAH program. If you have an employee credit union, contact them to find out if you qualify for any programs or initiatives they may be offering.
5. Shop commercial lenders
Many lenders offer programs to help people buy a home with a small down payment. You may be surprised to learn that here are a lot of programs out there that need a total of 3% or 3.5% down. Most require Private Mortgage Insurance (PMI) which will have an impact on how much you can borrow. If you have excellent credit you may be able to secure a loan with no PMI. Get quotes from different banks before making a decision.
If your credit score is on the lower end (but above 580) and/or your debt-to-income is too high you may want to consider and FHA loan. An FHA loan is a mortgage insured by the Federal Housing Administration. Where conventional mortgages generally require borrowers to have debt-to-income of 45% or less, while the FHA allows borrowers to spend up to 56% of their income on their monthly obligations, such as credit card payments, student loans and car loans.
FHA borrowers are charged an annual mortgage insurance premium of up to 1.35 percent of the average outstanding balances of their loans. The fee is added to the borrower’s monthly mortgage payment. The FHA also charges a 1.75 percent upfront fee when the borrower gets the loan. Apply for FHA loans through your commercial lender.
Once you have your financing worked out make an appointment with a Realtor who will help you find your dream home in a your desired community.
Contact Gail Marcarelli at 561-809-6746 for help achieving the goal of home ownership.