5 Ways To Get Help With Down Payment & Closing Costs
Specialty mortgage programs such as VA loans, USDA loans, and FHA loans allow home buyers to get a loan with zero to minimal down payment and closing costs. Borrowers, however, may still be required to pay some part of the cost. But not all is lost for those who are a little cash-strapped and not in a position to afford these costs. There are a number of options available to help them realize their dream of owning a home. Below are five ways home buyers can get help with down payment/closing costs.
1. Down Payment Assistance
There are state-specific mortgage programs available which enable homebuyers to finance a property with special bonds and grants. In addition, the state also has several down payment assistance (DPA) programs to help homebuyers to either reduce their loan amount by up to $15,000, or provide them up to 5 percent of the loan amount to pay the closing costs and down payment.
2. Gifts from Family
Unless you are buying a property for investment purpose, you can always take financial help from your parents, siblings, grandparents, and friends in the form of gifts. You, however, may want to consult a mortgage expert before using a gift because different loans have different policies around them. What may be considered as a gift under a Conventional program may not fall into the category of a gift under the USDA or VA mortgage program.
3. Liquidating Personal Assets
If you have made investments in the assets such as bonds, mutual funds, stocks, IRAs, ETFs, or 401 (k) plans, you can easily liquidate some of them to arrange funds for paying down payment, closing or any other costs associated with your home purchase. Consult an expert before initiating the process of liquidation because there are specific documentation requirements to be able to use these funds.
4. Premium Pricing
The lowest rate that a lender quotes to the borrower is known as the “par rate.” If you are willing to pay a higher interest rate, the lender can usually offer a rebate that can be used for paying the down payment, closing, and other costs. For instance, if you agreed to pay a higher rate of 4.5 percent instead of a par rate of 4 percent, the lender may be able to provide a rebate of 1 percent. Which means for a $200,000 loan, $2,000 can be used for paying the closing costs. The option of premium pricing is a good idea; however, only if you intend to take the loan for a shorter term. Rates and rebates vary due to multiple factors such as the bond market, down payment, loan program, credit score, and more.
5. Collateralized Loan
If you are a first time home buyer who does not currently own a home, you don’t have the luxury of using the net proceeds from the sell of your existing home to pay the down payment on a new home. However, you may own other property (i.e. boat, car, jewelry, etc.) that could be used as collateral for a personal loan. This is is referred to as a taking out a “collateralized loan” or “secured loan”, and the money you borrow could possibly be used for help with down payment and closing costs. However, it is important to note that the monthly payments on this type of loan will be counted when calculating your debt-to-income ratio. This may significantly affect the home mortgage amount that you are eligible for, or may even make you ineligible for a mortgage altogether, so it is extremely important to speak with a mortgage expert before exploring this route.