It’s surely no secret that the residential real estate market is more competitive now than perhaps ever in history — limited inventory, low interest rates and an abundance of buyers. Plus to simply say that most listings are getting multiple offers is an understatement.
Although many buyers are “move-up” buyers, there remains a strong pool of first-time buyers as well. With rising rents, individuals are finding that not only can buying a home be more cost effective, but it also offers an opportunity to build wealth and equity with a long-term investment.
Being a first-time buyer is indeed a new road traveled with some obstacles to work around and overcome, but one of the most common issues that these buyers deal with is lack of or limited assets for down payment and closing costs.
Depending on an individual borrower’s profile, there are some options with 100 percent financing such as a Veterans Administration Mortgage (VA) or a Rural Housing Mortgage (USDA). Otherwise low down payment options include a 3.0 percent down conventional option or a 3.5 percent down FHA option.
Aside from the down payment, a first-time buyer also needs to consider closing costs which can accumulate to anywhere from 4 to 6 percent of the property sales price.
Closing costs and down payment, where applicable, can add up to anywhere between $10,000 to $15,000 on average with a home purchase price of $175,000.
With many first-time buyers having little or no funds to work with and needing more than $10,000 in most cases, they must often look to available resources to help ease the burden and keep competitive in the current active market.
Seller’s assist or seller concessions was once an option for buyers where the seller of the home “kicked back” some or all the closing costs as an incentive to purchase. This option is virtually non-existent when homes are receiving competitive offers that are more than the list price.
There are some other options available to home buyers to help offset their out-of-pocket costs, but the amounts and qualifications vary based on certain borrower criteria and the mortgage lender they are working with.
Some suggested options to help offset a buyer’s needed funds are as follows:
- Pennsylvania Housing Finance Agency Advantage Assistance Loan (PHFA). This program offers up to 4 percent of the purchase price with a maximum of $6,000 in a no-interest loan repaid over a 10-year period. The funds can be used toward down payment or closing costs and can be used with Conventional, FHA, VA and USDA primary loans.
- Lancaster Housing Opportunity Partnership (LHOP). This program offers $7,000 and up to $10,000 in the form of a 0 percent interest loan and can be used toward down payment or closing costs and can be combined with Conventional, FHA, VA and USDA primary loans.
- Community Grant Programs. These grants are offered through various sources for select periods of time and can offer up to $10,000 in the form of grant funds and can be used toward down payment or closing costs and can be combined with Conventional, FHA, VA and USDA primary loans.
- Lender Credits. Most mortgage lenders are going to offer the most competitive interest rate that a borrower qualifies for; but in some cases, a lender can offer a slightly higher interest rate and then provide a lender credit back to the borrower to help offset some of their out-of-pocket costs. Depending on the overall borrower profile, loan amount and other factors, these lender credits can provide several thousand dollars to help with closing costs. Again, this can be combined with Conventional, FHA, VA and USDA primary loans.
All of these options are going to vary from one lender to another and do include a variety of criteria that is subject to individual qualification. Unfortunately not all buyers will be able to use these sources.
Two last options to explore that some buyers seem to overlook are gift funds from a family member and accessing a retirement account to utilize some assets. Again these may not be options for everyone but are often worth looking into.
Ironing out specific details on the funds a borrower needs for closing should be an integral part of a mortgage pre-approval. This often involves an in-depth discussion between the loan officer and the buyer to make sure everyone is on the same page when it comes time to submit an offer to purchase to ensure the smoothest home buyer process for all parties involved.
Dan Ranck, HomeSale Mortgage, LLC
Mortgage Loan Originator
Direct: (717) 271-2400 / efax: (866) 849-4320
firstname.lastname@example.org / www.danranck.com
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