You finally built up your credit score and you feel ready to buy a home, BUT you don’t have a savings!? Are there ways for you to purchase a home without having a savings of your own? Yes there are ways, Tatiana Bynum of Custom Fit Real Estate Group tells you four ways you can get a home without a savings.
Pro Tip: How to Buy a Home Without a Savings
1. Down Payment Assistance Program
If you’re worried that you can’t purchase your home because you don’t have enough money for a down payment, you may qualify for a down payment assistance program but only if you’re a first-time home buyer.
How does the program work?
According to Rocket Mortgage, down payment assistance is presented in the form of loans, grants and other various programs. This typically is only reserved for first time home buyers and can be run by different organizations. Depending on which state you’re in and what programs are available eligibility is decided upon household income and credit history. Some programs do require that the homeowners take homebuyer education on financial responsibility and mortgage processes to qualify. How much you get from the program all depends on the type of program you apply for.
- Forgivable Loans
- Deferred-Payment loans
- Low-Interest Loans
- Matched Savings Programs
2. Family Down Payment Gift
These are funds that come from relatives or friends that are used for down payment, closing costs, and prepaid interest points, as explained by Quicken Loans. There are two types of family down payment gift categories: gift of cash, or gift of equity. Depending on the type of gift there are additional requirements needed from your lender to ensure the underwriting process goes according to plan.
Cash Down Payment Gifts
This is cash that you would receive as a gift that you intend to use towards your down payment. The lender will require a gift letter which is a statement from the gift giver that states the amount, and the agreement that it doesn’t need to be paid back confirming that this is a gift and not a loan. The lender will also request evidence of the transfer of funds, which can be the gift giver’s withdrawal slip and your deposit slip or a copy of the check and receipt of deposit of that check in to your account. The cash that is given needs to be sourced, and can not be cash that the gift giver just had on hand.
Gifts of Equity
This is a gift of property. This occurs when a family member decides to sell property you property below the sales price. The difference in the price that you pay and the sales price is considered the gift of equity, and that equity amount is then used towards your down payment. This also requires a gift letter from the family member to be given to the lender.
3. Lender Credits
This is an arrangement where the lender agrees to the borrower’s closing costs, either half or all of the closing costs. This does come with a cost of higher interest rates however. These funds could be applied for down payment if you lack the savings to cover either closing costs or a down. Rocket Mortgage explains that homeowners have the opportunity to utilize the lender credits towards down payments if they do not have enough for their down. This could be financially beneficial for two reasons: the premiums for private mortgage insurance are grouped based on the size of your down payment, utilizing lender credits as a tool to increase the size of your down payment can help you get lower premiums. Secondly, The your interest rate could be lowered the higher you make your down payment, again, utilizing this option as an assist to money you may have for down payment already.
4. Seller Concessions
Rocket Mortgage also indicates that Seller Concessions could have advantages if you have low to no savings when going in to home buying. Seller concessions are closing costs that the seller agrees to pay. In today’s house market for Las Vegas, NV, Seller Concessions are not going to happen because it is a Seller’s Market. Seller’s have the upper hand so it will be very unlikely that a seller agrees to cover any costs for the buyer, especially when houses are getting offers in way above original sales price. In the case that the market evens back out to a buyer’s market, that’s when buyers could utilize seller concessions as a tool to help them buy a house with low savings.
When looking to buy a home it is typical for buyers to have a few thousand to put towards closing costs and the down payment. the Seller concessions can help cut the cost so buyers wouldn’t have to completely drain their savings.
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