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One of the biggest misconceptions of home buying? The 20% down payment. Here’s how to buy with a lot less down.
Buying your first home conjures up all kinds of warm and fuzzy emotions: pride, joy, contentment. But before you get to the good stuff, you’ve got to cobble together a down payment, a daunting sum if you follow the textbook advice to squirrel away 20% of a home’s cost.
Here are five creative ways to build your down-payment nest egg faster than you may have ever imagined.
1. Crowdsource Your Dream Home:
You may have heard of people using sites like Kickstarter to fund creative projects like short films and concert tours. Well, who says you can’t crowdsource your first home? Forget the traditional registry, the fine china, and the 16-speed blender. Use sites likeFeather the Nest and Hatch My House to raise your down payment. Hatch My House says it’s helped Americans raise more than $2 million for down payments.
2. Ask the Seller to Help (Really!):
When sellers want to a get a deal done quickly, they might be willing to assist buyers with the closing costs. Fewer closing costs = more money you can apply toward your deposit.
“They’re called seller concessions,” says Ray Rodriguez, regional mortgage sales manager for the New York metro area at TD Bank. Talk with your real estate agent. She might help you negotiate for something like 2% of the overall sales price in concessions to help with the closing costs.
There are limits on concessions depending on the type of mortgage you get. For FHA mortgages, the cap is 6% of the sale price. For Fannie Mae-guaranteed loans, the caps vary between 3% and 9%, depending on the ratio between how much you put down and the amount you finance. Individual banks have varying caps on concessions.
No matter where they net out, concessions must be part of the purchase contract.
3. Look into Government Options:
The U.S. Department of Housing and Urban Development, or HUD, offers a number of homeownership programs, including assistance with down payment and closing costs. These are typically available for people who meet particular income or location requirements. HUD has a list of links by state that direct you to the appropriate page for information about your state.
HUD offers help based on profession as well. If you’re a law enforcement officer, firefighter, teacher, or EMT, you may be eligible under its Good Neighbor Next Door Sales Program for a 50% discount on a house’s HUD-appraised value in “revitalization areas.” Those areas are designated by Congress for homeownership opportunities. And if you qualify for an FHA-insured mortgage under this program, the down payment is only $100; you can even finance the closing costs.
For veterans, the VA will guarantee part of a home loan through commercial lenders. Often, there’s no down payment or private mortgage insurance required, and the program helps borrowers secure a competitive interest rate.
Some cities also offer homeownership help. “The city of Hartford has the HouseHartford Program that gives down payment assistance and closing cost assistance,” says Matthew Carbray, a certified financial planner with Ridgeline Financial Partners and Carbray Staunton Financial Planners in Avon, Conn. The program partners with lenders, real estate attorneys, and homebuyer counseling agencies and has helped 1,200 low-income families.
4. Check with Your Employer:
Employer Assisted Housing (EAH) programs help connect low- to moderate-income workers with down payment assistance through their employer. In Pennsylvania, if you work for a participating EAH employer, you can apply for a loan of up to $8,000 for down payment and closing cost assistance. The loan is interest-free and borrowers have 10 years to pay it back. Washington University in St. Louis offers forgivable loans to qualified employees who want to purchase housing in specific city neighborhoods. University employees receive the lesser of 5% of the purchase price or $6,000 toward down payment or closing costs.
Ask the human resources or benefits personnel at your employer if the company is part of an EAH program.
5. Take Advantage of Special Lender Programs:
Finally, many lenders offer programs to help people buy a home with a small down payment. “I would say that the biggest misconception [of homebuying] is that you need 20% for the down payment of a house,” says Rodriguez. “There are a lot of programs out there that need a total of 3% or 3.5% down.”
FHA mortgages, for example, can require as little as 3.5%. But bear in mind that there are both upfront and monthly mortgage insurance payments. “The mortgage insurance could add another $300 to your monthly mortgage payment,” Rodriguez says.
Some lender programs go even further. TD Bank, for example, offers a 3% down payment with no mortgage insurance program, and other banks may have similar offerings. “Check with your regional bank,” Rodriguez says. “Maybe they have their own first-time buyer program.”
Not so daunting after all, is it? There’s actually a lot of help available to many first-time buyers who want to achieve their homeownership dreams. All you need to do is a little research — and start peeking at those home listings!
A solid game plan can help you narrow your homebuying search to find the best home for you. House hunting is just like any other shopping expedition. If you identify exactly what you want and do some research, you’ll zoom in on the home you want at the best price. These eight tips will guide you through a smart homebuying process.
Understand the type of home that suits your personality. Do you prefer a new or existing home? A ranch or a multistory home? If you’re leaning toward a fixer-upper, are you truly handy, or will you need to budget for contractors?
List the features you most want in a home and identify which are necessities and which are extras. Identify three to four neighborhoods you’d like to live in based on commute time, schools, recreation, crime, and price. Then hop onto realtor.com to get a feel for the homes available in your price range in your favorite neighborhoods. Use the results to prioritize your wants and needs so you can add in and weed out properties from the inventory you’d like to view.
Generally, lenders say you can afford a home priced two to three times your gross income. Create a budget so you know how much you’re comfortable spending each month on housing. Don’t wait until you’ve found a home and made an offer to investigate financing.
Gather your financial records and meet with a lender to get a prequalification letter spelling out how much you’re eligible to borrow. The lender won’t necessarily consider the extra fees you’ll pay when you purchase or your plans to begin a family or purchase a new car, so shop in a price range you’re comfortable with. Also, presenting an offer contingent on financing will make your bid less attractive to sellers.
Do you have blemishes on your credit that will take time to clear up? If you already own, have you sold your current home? If not, you’ll need to factor in the time needed to sell. If you rent, when is your lease up? Do you expect interest rates to jump anytime soon? All these factors will affect your buying, closing, and moving timelines.
Your future plans may dictate the type of home you’ll buy. Are you looking for a starter house with plans to move up in a few years, or do you hope to stay in the home for five to 10 years? With a starter, you may need to adjust your expectations. If you plan to nest, be sure your priority list helps you identify a home you’ll still love years from now.
Ask people you trust for referrals to a real estate professional they trust. Interview agents to determine which have expertise in the neighborhoods and type of homes you’re interested in. Because homebuying triggers many emotions, consider whether an agent’s style meshes with your personality.
Also ask if the agent specializes in buyer representation. Unlike listing agents, whose first duty is to the seller, buyers’ reps work only for you even though they’re typically paid by the seller. Finally, check whether agents are REALTORS®, which means they’re members of the NATIONAL ASSOCIATION OF REALTORS®. NAR has been a champion of homeownership rights for more than a century.
It’s OK to be picky about the home and neighborhood you want, but don’t be close-minded, unrealistic, or blinded by minor imperfections. If you insist on living in a cul-de-sac, you may miss out on great homes on streets that are just as quiet and secluded.
On the flip side, don’t be so swayed by a “wow” feature that you forget about other issues — like noise levels — that can have a big impact on your quality of life. Use your priority list to evaluate each property, remembering there’s no such thing as the perfect home.
It’s natural to seek reassurance when making a big financial decision. But you know that saying about too many cooks in the kitchen. If you need a second opinion, select one or two people. But remain true to your list of wants and needs so the final decision is based on criteria you’ve identified as important.
By: G. M. Filisko
Be sure you’re walking away with all the money you’re entitled to from the sale of your home.
When you’re ready to close on the sale of your home and move to your new home, you may be so close to the finish line that you coast, thinking there’s nothing left for you to do. Not so fast. It’s easy to waste a few dollars here and for mistakes to creep into your closing documents there, all adding up to a bundle of lost profit. Spot money-losing problems with these seven tips.
Avoid a dispute with the buyers after closing over things like fees for the cable service you forgot to discontinue. Contact every utility and service provider to end or transfer service to your new address as of the closing date.
If you’re on an automatic-fill schedule for heating oil or propane, don’t pay for a pre-closing refill that provides free fuel for the new owner. Contact your insurer to terminate coverage on your old home, get coverage on your new home, and ask whether you’re entitled to a refund of prepaid premium.
Provide the post office with your forwarding address two to four weeks before the closing. Also notify credit card companies, publication subscription departments, friends and family, and your financial institutions of your new address.
Scrutinize your moving company’s estimate. If you’re making a long-distance move, which is often billed according to weight, note the weight of your property and watch so the movers don’t use excessive padding to boost the weight. Also check with your homeowners insurer about coverage for your move. Usually movers cover only what they pack.
Title company employees are only human, so they can make mistakes. The day before your closing, check the math on your HUD-1 Settlement Statement.
Are all mortgages being paid off, and are the payoff amounts correct? If your real estate agent promised you extras — such as a discounted commission or a home warranty policy — make sure that’s included. Also check whether your real estate agent or title company added fees that weren’t disclosed earlier. If any party suggests leaving items off the settlement statement, consult a lawyer about whether that might expose you to legal risk.
6. Search for missing credits!
Be sure the settlement company properly credited you for prepaid expenses, such as property taxes and homeowners association fees, if applicable. If you’ve prepaid taxes for the year, you’re entitled to a credit for the time you no longer own the home. Have you been credited for heating oil or propane left in the tank?
End your home sale closing with nothing unresolved. Make sure the title company releases money already held in escrow for you, and avoid leaving sales proceeds in a new escrow to be dickered over later.
By knowing how much mortgage you can handle, you can ensure that homeownership will fit in your budget. Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget. Why not just take out the biggest mortgage a lender says you can have? Because your lender bases that number on a formula that doesn’t consider your current and future financial and personal goals.
Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add daycare to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage? Consider those lifestyle issues as you check out these four methods for estimating the amount of mortgage you can afford.
The oldest rule of thumb says you can typically afford a home priced two to three times your gross income. So, if you earn $100,000, you can typically afford a home between $200,000 and $300,000. But, that’s not the best method because it doesn’t take into account your monthly expenses and debts. Those costs greatly influence how much you can afford. Let’s say you earn $100,000 a year but have $1,000 in monthly payments for student debt, car loans, and credit card minimum payments. You don’t have as much money to pay your mortgage as someone earning the same income with no debts.
Better option: Prepare a family budget that tallies your ongoing monthly bills for everything — credit cards, car and student loans, lunch at work, day care, date night, vacations, and savings. See what’s left over to spend on homeownership costs, like your mortgage, property taxes, insurance, maintenance, utilities, and community association fees, if applicable.
How much money do you have for a down-payment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which protects the lender if you default and costs hundreds each month. That leaves more money for your mortgage payment. The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment. But, if interest rates and/or home prices are rising and you wait to buy until you accumulate a bigger down-payment, you may end up paying more for your home.
Lenders generally follow the 43% rule. Your monthly mortgage payments covering your home loan principal, interest, taxes and insurance, plus all your other bills (such as car loans, utilities, and credit cards) shouldn’t exceed 43% of your gross annual income. Here’s an example of how the 43% calculation works for a homebuyer making $100,000 a year before taxes:
You might find a lender willing to give you a mortgage with a payment that goes above the 43% line, but consider carefully before you take it. Evidence from studies of mortgage loans suggest that borrowers who go over the limit are more likely to run into trouble making monthly payments, the Consumer Financial Protection Bureau warns.
The tax benefits of homeownership generally allow you to afford a mortgage payment — including taxes and insurance — of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.
Here’s an example: If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.
However, if you’re struggling to keep up with your rent, buy a home that will give you the same payment rather than going up to a higher monthly payment. You’ll have additional costs for homeownership that your landlord now covers, like property taxes and repairs. If there’s no room in your budget for those extras, you could become financially stressed. Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.
By: G. M. Filisko
While you’d like to get the best price for your home, consider our six reasons to reduce your home price. Home not selling? That could happen for a number of reasons you can’t control, like a unique home layout or having one of the few homes in the neighborhood without a garage. There is one factor you can control: your home price. These six signs may be telling you it’s time to lower your price.
You get the most interest in your home right after you put it on the market because buyers want to catch a great new home before anybody else takes it. If your real estate agent reports there have been fewer buyers calling about and asking to tour your home than there have been for other homes in your area, that may be a sign buyers think it’s overpriced and are waiting for the price to fall before viewing it.
If you’ve had 30 sets of potential buyers come through your home and not a single one has made an offer, something is off. What are other agents telling your agent about your home? An overly high price may be discouraging buyers from making an offer.
Ask your real estate agent about the average number of days it takes to sell a home in your market. If the answer is 30 and you’re pushing 45, your price may be affecting buyer interest. When a home sits on the market, buyers can begin to wonder if there’s something wrong with it, which can delay a sale even further. At least consider lowering your asking price.
If you’ve got to sell soon because of a job transfer or you’ve already purchased another home, it may be necessary to generate buyer interest by dropping your price so your home is a little lower priced than comparable homes in your area. Remember: It’s not how much money you need that determines the sale price of your home, it’s how much money a buyer is willing to spend.
Maybe you’re plum out of cash and don’t have the funds to put fresh paint on the walls, clean the carpets, and add curb appeal. But the feedback your agent is reporting from buyers is that your home isn’t as well-appointed as similarly priced homes. When your home has been on the market longer than comparable homes in better condition, it’s time to accept that buyers expect to pay less for a home that doesn’t show as well as others.
If weeks go by with no offers, continue to check out the competition. What have comparable homes sold for and what’s still on the market? What new listings have been added since you listed your home for sale? If comparable home sales or new listings show your price is too steep, consider a price reduction.
The MBTA’s new fare changes will take effect this Friday, and though you won’t have to break the bank, prices are on the uptick.
Commuters will see hikes almost across the board, save for a 10-cent drop in bus cash fares. Here’s a look at how much you’ll be shelling out come July 1:
Single-Fare Rides
Fare Type
Local Bus
CharlieCard: $1.70
CharlieTicket: $2
Cash on board: $2
Senior and TAP: 85 cents
Student: 85 cents
Bus + Bus
CharlieCard: $1.70
CharlieTicket: $2.00
Cash on board: $4.00
Senior and TAP: $0.85 cents
Student: 85 cents
Rapid Transit
CharlieCard: $2.25
CharlieTicket: $2.75
Cash on board: $2.75
Senior and TAP: $1.10
Student: $1.10
Bus + Rapid Transit
CharlieCard: $2.25 (Users may transfer from a local bus to a rapid transit to a local bus for the price of one rapid transit trip)
CharlieTicket: $4.75
Cash on board: $4.75
Senior and TAP: $1.10
Student: $1.10
Monthly Passes
LinkPass Monthly: $84.50
7-Day LinkPass: $21.25
Local Bus Monthly Pass: $55
Senior/TAP Monthly Pass: $30
Student Monthly Pass: $30
Commuter Rail
On top of the fare hikes, the MBTA has increased its Student Pass availability; come Sept. 1, monthly passes will be valid seven days a week during the academic school year. In addition, starting in 2017, students may retain up to $30 on their passes during July and August.
Last week, the The Massachusetts Department of Transportation Board approved a $14.8 billion 5-year Capital Investment Plan to improve its core systems and modernize the current infrastructure in lieu of expansion.
By: Ari Taylor
Casey C. from Revere asks, “How do you coordinate buying and selling at the same time?”
Just one real estate transaction can be stressful enough! How do you juggle two real estate transactions at the same time?
Build a good team! Having an agent, a broker and an attorney on your team is crucial. When buying and selling, you need to make certain that your team is rock solid!
Talk to your mortgage broker first. There are two ways to approach this situation: Is your purchase contingent on selling your home, or can you purchase first?
If you are able to make a second purchase without selling first, this could make things a lot easier, but there are a few things to be aware of… How long can you afford two mortgages? What is your home worth? What can you afford without selling first? What can afford if you do sell first? Would you consider renting your current property out rather than selling?
Call your Realtor! Most Realtors are able to handle the sale of your current home and the purchase of your new home. Having one person for both helps with the timelines and keeps everyone in the loop.
Talk to your Realtor about a plan and a timeline! Set limits in terms of what you are willing to accept.
Set realistic goals! When submitting an offer, you look much stronger to a seller if you have nothing to sell first. And on the flip side, buyers are more attracted to a quick close.\
Keep in mind that this doesn’t mean it can’t be done!
List your home and hold an open house before you submit an offer. Having an offer on your property shows the seller you are serious.
Work with one team to ensure everyone know the entirety of the situation and know your limits!
Interested in buying a new home? Call Today!
(DAILY REAL ESTATE NEWS | THURSDAY, JUNE 23, 2016)
First-time home buyers are facing some stiff competition this summer, and while they may feel compelled to make a hasty real estate decision, doing so could lead to financial remorse or home buyer regret, according to Curbed.com. In their article, real estate professionals share some of the most common mistakes by first-time home buyers, including:
Choosing the most expensive home — Just because you can qualify for a loan to buy that high, doesn’t mean you necessarily should. Some buyers max out how much they spend but then have nothing left over for savings. They get over their head quickly then when they move into home ownership.
Not shopping around enough — This applies to seeing enough homes and shopping for the right mortgage. “We are in a crazy market, and many buyers feel rushed,” says Mark Ferguson, a real estate professional and creator of Invest Four More. Buyers likely need to be able to act quickly in some areas but they don’t need to feel pressured to buy the first house they see. They should take time to learn the markets and its values so they can feel more confident about their purchase. They also should take into account all the costs of home ownership, including mortgage, insurance, taxes, maintenance, utilities, and unexpected incidentals, Ferguson says.
Being indecisive — On the same note, home buyers can’t be paralyzed to act in the market either if they want a home. Many first-time home buyers “suffer from the fear of missing out,” says Kwame Joseph, a real estate professional with Coldwell Banker Residential. “They may find a home that they love, and though their gut tells them it’s the right house for them, they believe that there’s something better.” Joseph says he’s had markets make an offer and then still want to view other properties. But backing out at that point could become costly.
Working with the seller’s agent — Some buyers get the help of the seller’s agents, but they are there to represent the seller, not the buyer. Often, they don’t realize that the buyer’s agent will be compensated through a commission split from the seller’s side so there’s “no out of pocket expense” to first-time home buyers seeking an agent for themselves.
Buying your first home conjures up all kinds of warm and fuzzy emotions: pride, joy, contentment. But before you get to the good stuff, you’ve got to cobble together a down payment, a daunting sum if you follow the textbook advice to squirrel away 20% of a home’s cost.
Here are five creative ways to build your down-payment nest egg faster than you may have ever imagined.
You may have heard of people using sites like Kickstarter to fund creative projects like short films and concert tours. Well, who says you can’t crowdsource your first home? Forget the traditional registry, the fine china, and the 16-speed blender. Use sites likeFeather the Nest and Hatch My House to raise your down payment. Hatch My House says it’s helped Americans raise more than $2 million for down payments.
When sellers want to a get a deal done quickly, they might be willing to assist buyers with the closing costs. Fewer closing costs = more money you can apply toward your deposit.
“They’re called seller concessions,” says Ray Rodriguez, regional mortgage sales manager for the New York metro area at TD Bank. Talk with your real estate agent. She might help you negotiate for something like 2% of the overall sales price in concessions to help with the closing costs.
There are limits on concessions depending on the type of mortgage you get. For FHA mortgages, the cap is 6% of the sale price. For Fannie Mae-guaranteed loans, the caps vary between 3% and 9%, depending on the ratio between how much you put down and the amount you finance. Individual banks have varying caps on concessions.
No matter where they net out, concessions must be part of the purchase contract.
The U.S. Department of Housing and Urban Development, or HUD, offers a number of homeownership programs, including assistance with down payment and closing costs. These are typically available for people who meet particular income or location requirements. HUD has a list of links by state that direct you to the appropriate page for information about your state.
HUD offers help based on profession as well. If you’re a law enforcement officer, firefighter, teacher, or EMT, you may be eligible under its Good Neighbor Next Door Sales Program for a 50% discount on a house’s HUD-appraised value in “revitalization areas.” Those areas are designated by Congress for homeownership opportunities. And if you qualify for an FHA-insured mortgage under this program, the down payment is only $100; you can even finance the closing costs.
For veterans, the VA will guarantee part of a home loan through commercial lenders. Often, there’s no down payment or private mortgage insurance required, and the program helps borrowers secure a competitive interest rate.
Some cities also offer homeownership help. “The city of Hartford has the HouseHartford Program that gives down payment assistance and closing cost assistance,” says Matthew Carbray, a certified financial planner with Ridgeline Financial Partners and Carbray Staunton Financial Planners in Avon, Conn. The program partners with lenders, real estate attorneys, and homebuyer counseling agencies and has helped 1,200 low-income families.
Employer Assisted Housing (EAH) programs help connect low- to moderate-income workers with down payment assistance through their employer. In Pennsylvania, if you work for a participating EAH employer, you can apply for a loan of up to $8,000 for down payment and closing cost assistance. The loan is interest-free and borrowers have 10 years to pay it back. Washington University in St. Louis offers forgivable loans to qualified employees who want to purchase housing in specific city neighborhoods. University employees receive the lesser of 5% of the purchase price or $6,000 toward down payment or closing costs.
Ask the human resources or benefits personnel at your employer if the company is part of an EAH program.
Finally, many lenders offer programs to help people buy a home with a small down payment. “I would say that the biggest misconception [of homebuying] is that you need 20% for the down payment of a house,” says Rodriguez. “There are a lot of programs out there that need a total of 3% or 3.5% down.”
FHA mortgages, for example, can require as little as 3.5%. But bear in mind that there are both upfront and monthly mortgage insurance payments. “The mortgage insurance could add another $300 to your monthly mortgage payment,” Rodriguez says.
Some lender programs go even further. TD Bank, for example, offers a 3% down payment with no mortgage insurance program, and other banks may have similar offerings. “Check with your regional bank,” Rodriguez says. “Maybe they have their own first-time buyer program.”
Not so daunting after all, is it? There’s actually a lot of help available to many first-time buyers who want to achieve their homeownership dreams. All you need to do is a little research — and start peeking at those home listings!
More articles like this available HERE.
By: Ari Taylor
Frank W. from Boston asks: “Whose initials are PMI and why do I have to deal with them for a house?”
What is PMI? It stands for Private Mortgage Insurance. Simply put, PMI is an insurance policy on your loan. You pay the premium, typically in monthly installments, which are added to your mortgage. With this, the lender is covered if you default on your mortgage.
Why does PMI happen? We have always heard that you need 20% down to get a loan. In a perfect world, 20% down is the best way to go. BUT, it’s not always feasible. Say you live in an area with a median home sale price of $400k, 20% of that price is $80k! How do you save that much when you are paying $2k every month in rent (for tips on saving money to buy a home go here: “Add It Up!”).
A more reasonable goal is to save 3.5-5% (somewhere between $14,000 an $20,000). PMI is applied to 20% of the value of the home.
According to bankrate.com, “Private mortgage insurance fees vary, depending on the size of the down payment and your credit score, from around 0.3 percent to about 1.5 percent of the original loan amount per year. Some years, PMI premiums are tax-deductible and some years they are not. It depends upon the whim of Congress.”
(to read full article from bankrate.com, click here: “The Basics of PMI”)
PMI is charged on the outstanding loan balance, so if you buy a $400k house and put $20k down, you are paying PMI on $380k. Once your loan hits 80% ($320K), you are able to call and cancel your PMI. When your loan has reached 78% of the value ($412K), the lender must cancel PMI.
Call today for assistance finding a lender who can help!
Real Estate and *stuff * 