Buying a home in today’s market takes confidence
and experience. You can count on our experience
to help you find and buy an affordable home with
confidence. Here are some tips to help you clip
your home buying costs.
HOME SEARCH
FINANCING
We start off with a basic figure: What is the monthly
payment range you can afford? From that, we calculate an
affordable loan amount and look only at homes within your
price range. You may not find every last feature of your
dream home, but that does not mean you must abandon
your dreams to buy. One solution is to look at properties
that promise appreciation, so when you want to exchange
your home later for something closer to your dreams, it
will pay off.
Another solution is to take advantage of current financing plans designed to reduce your monthly payments, your
down payment, or both:
SETTLEMENT STRATEGIES
The initial
interest rate on an ARM is lower than a conventional loan,
thereby requiring lower monthly payments. The rate rises
or falls at intervals, but within limits. Ask about 3-year and
5-year options offering no rate adjustment until the third or
fifth year, then annual adjustments after that. Desirable
ARMs have low rate caps (ideal: 2-30o adjustable cap,
5-6% life-of-loan cap) and below-market rates for the
first period. Expect to shop among several lenders for the
best terms.
If yon’ re more comfortable with
the security of a higher-priced fixed-rate loan, opting for
a longer term (30 years rather than 15 years) may put
monthly payments within reach. Although you would pay
more in interest over the life of the loan, most homeowners
plan to move before 30 years are up.
If you are an eligible
veteran, the Department of Veterans Affairs requires no
down payment (up to a specific sales price) for a VA
mortgage. Ask us for the current ceiling.
Insured by the
Federal Housing Administration, your loan (obtained
through an established lender) requires a lower down
payment and interest rate than most other mortgages.
The minimum down payment for an FHA-insured loan is
usually 3% of the purchase price. In some areas of the
country, down payment requirements may be even lower
for qualified borrowers. (Call us to find out more!)
You
insure your mortgage privately, to allow you to take
out a mortgage with less
than a 20% down payment.
Your PMI covers your lender’s risk (should you fail to
make mortgage payments).
At settlement, a third party (builder,
seller or investor) agrees to put additional cash ‘~up front”
with a lender, in exchange for a lower interest rate to the
buyer. Approaches vary among permanent buydowns,
multi-year and graduated plans. These rate subsidies can
help you afford the home you want.
The initial
interest rate of a GPM is lower than a conventional loan
and it has scheduled increases in following years as your
income presumably is on the rise.
Some sellers are willing to
consider seller financing (in several formats) designed to
reduce buyers’ payments. One format is a short-term
second mortgage, secured by the home and accepted
by the seller to help trim the buyer’s down payment
requirements. Another is a long-term first mortgage but
without the usual qualification standards.
When you assume an
existing loan, your ~down payment” is the difference
between the sales price and the loan balance. By finding an
assumption with a high unpaid balance, you may reduce
your down payment. If the loan has a lower-than-market
interest rate, you'll also reduce your monthly payments.
A loan co-signer can help you
qualif5i for a larger loan on a longer term, making monthly
payments smaller.
You buy your home with a
parent, relative, friend or other qualified investor who
makes the down payment. You share the purchase costs,
the maintenance, the monthly payments — and equity
profits on sale.
Still another solution to reduce your monthly
payments is to find additional funds for a down payment.
For example:
BOTTOM LINE
Receive a tax-free gift from your
parents (or others) documented by a “gift letter” stating no
repayment is required (thus your debt burden is not
increased). Children can receive up
to $10,000 from each parent in one
year tax free; thus, a couple can
get gifts up to $40,000 from four
parents without any gift tax
consequences. Some lenders
may require you to use some
of your own money in
addition to the gift.
Ask your lender
if you can pay closing
costs from your mortgage loan proceeds.
This will free some additional cash for a down payment.
If you own other property (real
estate,jewelry, collectibles, automobile, etc.), securities
(stocks, bonds) or other assets, they can be sold to make
your down payment.
Buyers anticipating an income tax
refund can use it to increase their down payment thuds,
especially in the spring.
If your life insurance has cash
value, you may be able to borrow against it at a low interest
rate, possibly without having to repay the loan — and
without jeopardizing your mortgage loan qualifications.
If you own bonds, an IRA,
vested pension or profit sharing, some banks will lend you
cash against these as collateral. The portfolio must be
negotiable, although not immediately available.
These are only a few of the dozens of ways to get
around the home-financing dilemma. We'll be glad to help
you explore them all. Don't hesitate to call.
E-Mail Laura at: laura@lauragilley.com today!