Resources & Tactics to Buy a Home With Little, or No, Out of Pocket Expense to YOU

Resources & Tactics to Buy a Home With Little, or No, Out of Pocket Expense to YOU

Long gone are the days where home buyers are required to have a 20% down payment in order to purchase a home. Also long gone are the days of exotic loans and creative financing that created conditions resulting in the “bubble” and the housing crisis of 2008. Consider today the “golden age” of home buying: affordability has continued to improve, the housing market isn’t on shaky footing due to irresponsible lending and borrowing, and, quite frankly, there are more options to how you buy a home than ever before. 

So you’re ready to do some serious adulting and start scratching the surface on buying a home, but it all seems overwhelming and expensive. You’re not wrong to feel that way, but the more information you have, the clearer the road becomes and the better decisions you make along your journey. And, yes, buying a home is expensive, but, with the right decisions, the money outlay doesn’t all need to come from you, so let’s take a look. First, let’s introduce you to what money is required when you buy a home and what they exactly mean. 

Cash requirement at settlement is comprised of two things:

1. Down payment for your loan, if applicable
   
   Depending on the loan program that you’re eligible for and decide to go with, this is your investment contribution to your home purchase

2. Closing expenses
   
   These are items debited to the buyer for services connected to buying a home. Examples include: lender fees, title company fees, state & local transfer taxes, and prepaid(s) (items collected in advance so the lender can build your escrow account)

It’s important to know the difference between these two because they are lumped in as one lump sum total to be collected when you are at settlement on your home and the strategies to minimize or offset completely, are different. Now let’s break these down and look at resources and tactics that can be used, depending on the situation, to help limit your out of pocket expenses.

Down payment strategies:

• Zero down payment loans
• USDA financing: property you’re buying needs to be in an eligible rural area and you need to meet income restrictions
• VA financing: reserved for those that are veterans, active service members, and qualifying surviving spouses
• Navy Federal Credit Union financing: have to be a member of their credit union AND 1st time home buyer

Low down payment loans

• FHA financing: a government-backed mortgage that, depending on credit, down payment can be as low as 3.5% of the purchase price
• Conventional financing: created by Fannie Mae and can be as low as 3 or 5% depending on eligibility requirements

Down payment assistance programs

• Must meet eligibility requirements and certain restrictions, but the money provided can be used for a down payment and/or closing expenses and it may or may not need to be paid back depending on the program.
• A gift from a family member
  With the proper documentation, low down payment loans will allow a monetary gift from a family member to be applied towards all or some of the required down payment amount

Closing expenses strategies:

• Federal or state/county assistance programs:
  As mentioned above, if a buyer met the requirements, assistance from these programs can be applied towards closing expenses.

• A gift from a family member:
  Again, as long as the gift is properly documented per your lender’s requirements, a gift from a family member can be used towards closing costs.
• Tactful negotiation:
  This is the most common method towards offsetting some, or all, of a buyer’s closing expenses. Whether or not this is possible and exactly how much is on case-by-case with each sale, as there are other factors, such as: are there other offers, seller’s motivation, etc. It’s important to note that certain loan programs may have limits on how much help a buyer can get from a seller. 
• Schedule settlement at the end of the month:
  While this doesn’t eliminate closing expenses, it’s a strategic way to help lower them. Prepaid interest is one of the closing expenses and is collected from the day of settlement through the end of the month. Closing at the end of the month decreases the number of days worth of interest that is collected.

It’s important to know that any combination of resources and tactics can dramatically impact the out of pocket cash required to purchase a home, but it takes the right guidance and information to ensure you’re making good decisions for your situation. It’s not enough to simply wing it or guess, build a team of the right professionals that will help you stay on the right path and support you in making good home-buying decisions; because YOU DESERVE IT! Call/text or email us with all your questions.

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