If you are lacking the necessary down payment it doesn’t mean you can’t buy a house. There are a few options available that may make sense depending on your situation. One of the mistakes that new buyers make is thinking that the down payment is the only money they will need when they buy. When they receive their loan estimate they are surprised to see all of the additional up front property taxes and loan closing costs. These will total thousands of dollars and can leave you searching for answers. If you are a little short on your down payment here are a few options that you have available.
Look for a seller credit. If there is room to include a credit this should be your first option. Not every seller is either willing or able to give a credit for closing costs. How a seller credit works is that the sales price is inflated by the amount of the credit. The buyer can use this credit to cover closing costs and property taxes. This is included in the contract is capped at either 3 or 6% of the purchase price. Doing this lowers the amount of money the buyer needs to bring to the closing. The seller still walks away with the net amount they were looking for while the buyer holds onto as much cash as they can.
Gift. There are a few loan programs that allow the buyer to use gift funds as a down payment source. As it sounds a gift is simply where a family member gives you the money to cover the down payment or closing costs. On the loan application there is no repayment and these funds act as your own. Some programs limit the gift amount while FHA allows for the entire down payment to come as a gift. This works not only if you are short on funds but if they haven’t been in your account for a designated amount of time. The gift must come from an eligible family member as determined by the specific lender.
Assets. There are some retirement accounts that allow you to withdraw without penalty exclusively for a home purchase. Taking money from a retirement account should something you give great thought to before doing. Not only are you dipping into your retirement savings but the process of actually getting the funds can be difficult and lengthy. Additionally even if you are allowed to withdraw you may be subject to a penalty. That being said if you use the funds to purchase you will accumulate an asset that may give you a greater return down the road. With where current interest rates are this is an option that can make sense for you in the right circumstance.
Anytime you are considering a purchase you need to know exactly how much closing funds you will have available. Remember to add the closing costs and property taxes to the money you will need at closing. If you are short it doesn’t mean you can’t purchase. It just means that you and your real estate agent need to think outside the box. You do have options available