How To Get Financing and Cash To Close
Do you dream of the day when you can afford to own a home, but just aren’t sure your budget could handle all of the upfront costs? Thanks to a whole host of mortgages and programs specifically designed for first time homebuyers, ownership can be an attainable goal after all.
Typically there is a down payment along with closing costs associated with traditional mortgages. Down payments are usually a minimum of 3.5% unless there is a special grant or down payment assistance program being offered. As for the buyer’s closing costs, they typically average about 3% of the purchase price of the home.
While the down payment and closing costs can seem like an overwhelming amount of money to sign over all at once, there are a number of options and different routes you can take depending on your situation.
One course of action is negotiating with the seller to have them pay closing costs. Most lenders aren’t concerned with where the money comes from as long as they get paid. If you agree to pay the full asking price--or the seller’s home has been on the market for some time--you may have more negotiating power when it comes to having these costs paid in full. While this request of the seller can be made, don’t let it be an expectation. If you are in love with the home and want to make sure your deal doesn’t fall through to another offer, be prepared to close quickly and don’t make too many demands of the sellers if possible.
Some loans (typically an FHA loan) will allow you to use money that has been given to you by a family member as a gift to cover part of or the entire down payment. While not always an option, it is helpful to keep in mind especially if you have an upcoming life event such as a wedding where gifts could be given in the form of funds for your down payment.
A third option is to roll your closing costs into your overall mortgage. While this is sometimes possible, consider that adding interest into the equation, you may add as much as $9,000 to a 30-year mortgage on a $150,000 home purchase. To quality for this, you’ll need to have your lender loan more than the value of the home, also known as loan to value or LTV. This practice is more typical in a refinance situation than at the opening of a new loan.
Keep in mind there are also options specifically for veterans that can sometimes allow for no cash down when purchasing a home. For more information on assistance for veterans visit benefits.va.gov/homeloans.
Whichever route you choose, carefully consider your options. Using the True Affordability Tool, you’ll be able to clearly identify exactly what you can comfortably afford and what it will take to achieve your dream of homeownership.
Want more homebuying advice? Nestiny is a great place for homebuyer education and to help you gauge how ready you are to buy a home. Journey Homeward allows you to enter all of your wants and needs while the True Affordability Tool will break down your budget, showing what you can comfortably afford. You will also receive a free Ready Report that is personalized based upon the information that you entered. This report will give you a vital head start in the home buying journey, saving you valuable time and money.