Features
Brokeback Need Not Be Brokeforward
No Money Down
No Money Down
The
Path to Home Ownership
Doesn't Have to be Paved in Gold
by
Jeffrey Hammerberg
Most
first-time homebuyers share the same problem. They
don’t have enough accumulated savings to make a hefty down payment
for the purchase of a house. And it doesn't seem entirely fair, especially
to those who have worked hard to create and maintain good credit. As housing
prices doubled in recent years, wages remained relatively stagnant, and
a growing number of people found themselves locked out of their own potential
homes because of a lack of available savings. A 20% (or greater) outlay
of cash at closing is common, and can be a tremendous obstacle to overcome,
even if interest rates on mortgages remain relatively attractive.
But there are alternative strategies
to help get around the problem, and for many the "no money down"
option is an increasingly viable solution.
According to the National Association
of Realtors, over 43% of first-time homebuyers financed the entire cost
of their home. Others paid anywhere from as little as 5% to 1% down. So
you may be closer to the closing table than you imagined, especially if
you engage the help of an experienced and creative mortgage lender who
thinks outside the box to get you into a workable loan package.
Here are some popular ways it's done:
Secure a loan that also pays your
closing costs. With excellent credit you may qualify for loans over
and above the price of the property you’re buying. Some lenders
offer loans of up to 104 or 107 percent of the selling price, to provide
enough excess funds to pay all of your closing costs.
Because the lender considers you a
low risk borrower thanks to your high credit rating, they view this kind
of loan as increased business for themselves, while it offers an added
ease and convenience for you.
Apply for two separate loans that
are used in tandem to cover 100%. Ask your mortgage lender about
so-called "80/20" or "piggyback" loans. This type
of loan is actually two loans packaged
together to help you buy with no money down. One of the loans works in
a conventional way, and is for 80% of the purchase price. The second part
of the loan is a smaller 20% loan issued simultaneously.
In effect, the lender is letting you
borrow your 20% down payment. You can expect to pay higher rates on the
down payment
portion of the loan, but you get to buy a house with the "piggyback"
plan, rather than the "break open the piggy bank" plan.
Do you qualify for special
loans? The US Department of Housing
and Urban Development can provide you with information about state and
local government loan programs or loans available through nonprofit organizations.
Check them out, but if you find a loan that fits your circumstances, don't
delay – sometimes the loan funds are budgeted and dispersed on a
"first come, first served" basis and then they run out until
the next fiscal year.
And if you have served in the US military,
you may be eligible for a no-moneydown (or low money down) Veterans Affairs
loan.
Down payment funds from gifts
or retirement accounts. Some loan programs permit you to use funds
that are a gift from a family member for your down payment. The lender
will follow procedures and use a "paper trail" to ensure that
your family member isn't just temporarily
parking some money in your account, and that it really represents a no-strings-attached
legitimate and permanent gift. There are also lenders willing to make
the same concession for gifts from a domestic partner or even from a nonprofi
t organization.
You can also tap into your retirement
account as a way to get down payment money. There are specific guidelines
and stipulations,
so consult a tax professional to find out exactly how to do it. But most
401 (k) plans allow you to borrow as much as $50,000, as long as you have
enough funds leftover in the account to meet certain criteria.
Flexible owner financing.
Sometimes a seller doing self-financing will pay your closing costs, to
help you close the transaction. And if you use a "lease purchase"
contract, you may be able to negotiate it so
that the landlord/seller lets you apply monthly lease payments toward
the purchase price until enough money has changed hands to compensate
for the down payment.
Ask your mortgage representative to
help you decipher all the available options. Because real estate prices
have skyrocketed, mortgage lenders have become more creative to meet the
need for consumer-friendly loan packages. During the hot Japanese bull
market of the 1980's, banks in Tokyo began writing mortgages with payments
stretched out over lifetimes. A conventional 30-year loan became a 99-year
loan, in order to help people manage the payments on humongous mortgages.
We don't expect to see those kinds
of amortization schedules offered in the USA anytime soon, but we do see
opportunities for
f irst-time buyers to secure solid and reliable "zero-down"
mortgages.
To locate experienced realtors and lenders dedicated to the GLBT community,
visit the licensed professionals at www.GayRealEstate.com