Stop saving for the down payment and get help with it

Despite having decent credit, a good job and the ability to pay for a home every month, the dream of buying a home is somewhat elusive for those with little to no cash to put down.

This is why our younger generation isn’t buying homes at the rate that previous generations did.

With student loan debt weighing them down, there is little money left at the end of the month to set aside for the down payment on a home.

And, sadly, most lenders require you to have some skin in the game before they’ll lend you money for that home.

Thankfully, there is help – both state and municipal agencies offer down payment and closing cost assistance to homebuyers across the country.

While it will take some work on your part, you can get around saving that huge chunk of cash known as the down payment.

Down payment assistance programs

Down payment assistance comes in the forms of grants (that don’t have to be repaid) and loans — some at no interest or very low interest and some don’t have to be repaid until you sell the home.

State Housing Finance Agencies (HFA) offer many opportunities so check into yours first. You can find a list online at ncsha.org.

Counties and cities also offer down payment assistance programs as do certain non-profit agencies and employers. In fact, some of the larger labor unions, such as the Culinary Workers Union, offer assistance.

Then, there are special programs for teachers and first responders. See HUD’s Good Neighbor Next Door program for information on these programs.

Find state and local government programs on HUD’s website, here.

No down payment loans

1. If you are a current member of the military, a veteran or a surviving spouse, look into the VA Loan.

The United States Department of Veterans Affairs doesn’t actually grant loans; they guarantee the repayment of a portion of the loan should the borrower default.

The loan is granted by a private lender but not all lenders participate in the program so you may have to shop around for one. We are happy to refer you to a lender that participates

The VA-backed mortgage requires no down payment and there is no requirement to purchase private mortgage insurance, which will make your monthly payment lower than with a conventional loan.

There is, however, a funding fee but it can be wrapped into the loan amount, so you won’t have to come out-of-pocket for it.

2. The United States Department of Agriculture (USDA) offers the Rural Development home loan program which also requires no down payment.

They offer two different loan programs. The first is very much like the VA loan in that it offers the lender a government-backed guarantee.

The second program is a direct loan from the USDA and it’s for low-income borrowers.

These loans are for homes in rural areas and you can learn if a home you are interested in qualifies by using the USDA website’s eligibility tool.

Low down payment loans

FHA

Yes, FHA is popular for its low down-payment requirement, but when they changed the mortgage insurance requirement, the loan program became a lot less popular.

Today, the Mortgage Insurance Premium for the FHA loan sticks with it for the life of the loan.

If you need a low-down payment loan, however, this may be your program of choice. You’ll pay either 3.5 or 10 percent of the loan amount, depending on your credit score and lender requirements.

Fannie Mae and Freddy Mac

The HomeReady® loan from Fannie Mae actually offers a lower down payment requirement than the FHA program – 3 percent. You will also have the option of cancelling the PMI when your equity in the home reaches 20 percent.

This loan is best for low-to-moderate income borrowers with credit scores of 680 or more. You do not need to be a first-time homebuyer to qualify.

Home Possible®, Freddie Mac’s low-down payment program, offers down payment options as low as 3 percent. Learn more about this program online at freddiemac.com.

We are happy to share with you our information on no-to-low down payment loans. Give us a call.

Get Help With Your Down Payment

It’s frustrating to have a decent-paying job, a bright earnings future and acceptable credit and still not be able to buy a home because you lack the thousands of dollars in cash needed for a down payment and closing costs.

The dreaded down payment stops more potential homeowners cold than any other aspect of the loan process.

To read articles about down payment headaches one would think it’s only millennials who have trouble coming up with the funds.

In reality, most would-be first-time homebuyers, regardless of age, find saving up 20 percent of hundreds of thousands of dollars challenging.

Sure, you may qualify for a loan with a lower down payment, but do you really want to add to your monthly house payment by purchasing the mandated private mortgage insurance policy? That’s what’s required if you don’t have 20 percent equity in a home you purchase.

Today, we’ll explore ways you can get help with the down payment on your new home.

Crowdfund your down payment

Enter, HomeFundMe CMG Financial, which offers a brilliant way for you to come up with that down payment: Crowdfunding – with the approval of Fannie Mae and Freddie Mac.

Before the crowdfunding concept came into being, lenders stipulated that your down payment and closing cost funds must come from your savings (mutual funds, stocks, IRA and 401(K) included), proceeds from the sale of another property, assistance from government programs or non-profits, union, employers or gift money from an immediate relative.

HomeFundMe allows anyone to donate funds to help you buy a home and CMG Financial provides the online platform.

While many crowdfunding endeavors offer a return on investment, the HomeFundMe program returns nothing to those who give. Money given is considered a gift, although they can make the gift conditional on the money eventually going to fund a home purchase.

The program offers incentives to savers, however. Attend credit counselling and education classes and you may receive a grant of up to $2,500. Then, the crowdfunding platform will match donations “$2 for every $1 raised, up to $2,500,” according to CNBC’s Diana Olick.

Get help from the government

The government, from local to county, state and federal, offers programs to help Americans get into home ownership. Some of these programs are geared toward the low-income applicant while others are open to all.

Federal Home Loan Bank

The Federal Home Loan Bank offers three programs to help homebuyers with their down payments and closing costs:

  • Home$tart® — Assistance up to $7,500 for borrowers who take the homebuyer education program and earn up to 80 percent of their area’s median income (find yours on HUD’s website). Unlike the aforementioned programs, these funds come in the form of a grant.
  • Home$tart Plus — $15,000 to borrowers who are currently receiving public housing assistance. Borrowers must complete a financial literacy program and be income qualified.
  • Native American Homeownership Initiative (NAHI) — $15,000 to eligible Native American households to help with a down payment and closing costs.

Good Neighbor Next Door

This program falls under the auspices of the United States Department of Housing and Urban Development (HUD) and offers a discount (typically 50 percent) off the asking price of a home. The program is open to applicants in the following professions:

  • Pre-Kindergarten through 12th grade teachers
  • Law enforcement officers
  • Emergency medical technicians
  • Firefighters

Be aware that this program only covers homes in HUD’s revitalization areas that are listed for sale through this program.

Learn more about the program and how to apply on HUD’s website.

State and local programs

FHA offers state-wide down payment grants through a variety of programs. Search for them here.

Search for local programs at Freddie Mac’s website.

The National Association of Local Housing Finance Agencies (NALHFA) suggests using downpaymentresource.com to find information on local assistance programs.

provides local-level program information.

Finally, several labor unions, such as the Culinary Union, offer homebuying assistance programs for members.

The down payment isn’t the whole enchilada – here’s how much cash you’ll need to buy a house

The real estate industry has done a bang-up job on letting consumers know they’ll need some cash when they purchase a home. Typically, it’s the down payment that’s mentioned. Seldom are closing costs brought up so they end up a major surprise for homebuyers.

Between the two of those huge chunks of money are other cash outlays you’ll need to consider.

Earnest Money Deposit

You found the home you want to buy and you and your agent structured the perfect purchase agreement. In it, you’ll find a section dealing with your earnest money deposit (EMD). Your agent will list the amount you are paying and where it will be held.

So, what is this? There are several functions of an earnest money deposit. First, it shows the seller that you are serious about pursuing the purchase. After all, he or she will be taking the home off the market. This “skin in the game” evens the playing field. The seller takes a gamble by removing the home from the market and you put your cash on the line with the possibility of losing it, under certain circumstances.

The amount of money used for your EMD varies according to several factors, including what type of market you’re in (in fast-moving markets, a larger-than-normal EMD may entice the seller to choose your offer).

Typically, it’s 1 to 2 percent of the offering price. In May of this year the median home price in the U.S. was $345,800, which would mean an earnest money deposit of between $3,458 and $6,916.

Down Payment

When the seller accepts your offer, your lender will request that you wire them your down payment funds.

Down payments are expressed as a percentage of the purchase price of the home. For example, using our national average home price, you will need $69,160 for a 20 percent down payment, $34,580 for a 10 percent down payment, $17,290 if you are required to come up with a 5 percent down payment and $12,103 for a 3.5 percent down payment.

Down payment percentages depend upon the loan you’ll be obtaining. Conventional loans generally require 20 percent down and the best choice if you hope to avoid paying a monthly private insurance premium.

Other loans, such as those through FHA or Fannie Mae, require significantly less for the down payment, while the VA and USDA require no money down.

Closing costs

This is the part of the process that catches far too many homebuyers by surprise. Closing costs are all the fees required of everyone who helps you purchase the home. From your real estate agent’s commission and appraiser’s fee to the title company’s research and issuance of a policy and, of course, the lender’s fees. These fees add up – fast – so it’s important to compare closing cost estimates from several lenders. It’s also important to understand which costs are negotiable.

It’s not unusual for closing costs to amount to 2 to 5 percent of the loan amount. Using our average home price mentioned above, with a 3.5 percent down payment, the loan amount will be about $333,697. Closing costs would be anywhere from $6,674 to $16,685. As you can see, closing costs, if not prepared to pay, can come as quite a shock to homebuyers.

3 Ways to reduce closing costs

1. You can reduce a portion of your closing costs by closing as late in the month as possible. Lenders charge interest in arrears, meaning that when you make a house payment, you are actually paying for last month’s interest (and the coming month’s principal). When you close escrow, the lender will have calculated how much interest you owe from the date your loan was funded to the end of the current month.

For example, if you close on your new home on August 15, you’ll pre-pay the interest due from August 15 until August 31. September’s interest isn’t due until October 1, when you will make your first house payment.

Reduce the pre-paid interest charge by closing at the end of the month.

2. You can eliminate the need to pay all or part of your closing costs by requesting that the seller contribute. The seller gets to write that amount off as a tax deduction and you get to skip the closing costs, so it’s beneficial to all parties.

3. Ask your lender if you can include the closing costs in your loan. Yes, there will be a charge for this but it won’t be nearly as large as the immediate outlay of cash necessary to pay closing costs.

Despite what many first-time homebuyers think, the down payment isn’t the whole ball of wax when it comes to cash outlays when you purchase a home. It’s important to determine exactly how much cash you’ll need to purchase a home so that you can budget for these expenses.