Overcoming Down-Payment Challenges
Nothing splashes cold water on a home-buying plan like the realization you’re too short on cash to afford the down payment.
This is especially true today when reduced asking prices and cheap mortgage money make buying a house more irresistible than ever. If the prospect of renewed conservative lending guidelines, or the perception that you need a 20 percent down payment, is taking the wind out of your home-ownership sails, Marie Imanaka says it doesn’t have to be that way.
“This is a relevant topic,” says Imanaka, president of Wells Fargo Home Mortgage of Hawaii. “It is often a hurdle for first time homebuyers who have not saved enough money for the higher down payments required under today’s underwriting criteria.”
It’s time to get resourceful. Here are some tips from the formerly down-payment challenged, and otherwise ready, willing and able home buyers who have found a way.
1. Save, save, save
Where there’s a will, there’s a way.
“It’s amazing what someone can do when they have a goal and a focus,” says Bernie Tong, Realtor and partner with Prudential Locations. “Most do not realize where all their money is going until you sit down with them and make a list.
“It’s amazing how plate lunches and Starbuck’s coffees can add up,” says Tong. “I have had clients pay down bills and save a down payment in sometimes as little as six months just by adjusting their spending habits.”
2. Low/Zero-down loan options
There’s an exception to every rule.
* Zero-down loans are available to certain members of the armed services with Veterans Administration or VA loans. These loans are still available today and provide up to 100-percent financing.
* Not a veteran? Then look into the Federal Housing Administration’s FHA loans, which provide 96.5-percent financing to owner-occupant buyers. The remaining 3.5-percent down payment may come in the form of a gift to the buyer from a family member, and non-owner occupied co-borrowers are allowed to help you to qualify as well. According to Imanaka, mortgage insurance is required and condominiums must be FHA approved in order to qualify.
“FHA and VA loans are used by a lot of our first-time buyers,” Tong says. “These programs can also be more forgiving with low credit scores.”
3. Down payment gifts
Get a little help from your friends.
A fairly common source for down payment funds is a gift from a relative, fiancé, domestic partner a close friend, or even an employer, says Imanaka. As long as the donor has no interest in the sale of the property, and the money is a gift and not a loan, it is generally acceptable to the lender. Check with your lender for specific terms and conditions.
“Parents will often tap into their own home equity to come up with the gift money,” says Tong. “Grandparents can be a good resource as well, especially if you are planning to buy a place nearby and are available for future care giving.”
4. Government programs
Yes you can. * Check with your loan officer about Rural Development loans. For properties in designated rural areas, as defined by the U.S. Department of Agriculture, buyers may be eligible for 100 percent financing.
* Ask if you qualify for the Mortgage Credit Certificate program, administered by the State of Hawaii Housing Finance and Development Corporation, which can reduce the homebuyer’s federal income tax obligation and put more income into his/her pocket to help qualify for a loan.
Tong suggests prospective buyers talk with an accountant to adjust their withholdings to reflect taxes saved. By having less money withheld, for example, it may free up enough money to make the monthly payments.
“I’ve seen buyers get real innovative when they really put their mind to it,” she says.
Some clients have used tax refunds or end-of-the-year bonuses to supplement their cash funds, while others have tapped into their retirement accounts.
“Sometimes it makes sense to sell one of the cars, if you can get along with one car or use the bus,” says Tong. “In the past, I’ve even had clients sell Rolex watches for their down payment.”
No matter which of the above tips, or combination of tips, might be right for your circumstances, the benefits of home ownership can greatly enhance your financial future.
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