Three Ways to Come Up With Your Mortgage's Closing Costs and Down Payment
Regular readers of HSH.com's weekly MarketTrends newsletter have been following mortgage rate forecasts for 30-year mortgage rates, but low mortgage rates are just one portion of the housing equation. At the same time, there have been sporadic reports of stabilizing or even increasing home prices in some markets. As the economy slowly improves, the potential for higher rates and higher prices means that some folks may miss a historical opportunity to buy a home, since they may qualify for a mortgage loan based on their income... but may lack the funds needed to cover a downpayment and typical mortgage closing costs.
Here are some ideas for raising funds toward a down payment or closing costs for your new home beyond the tried-and-true savings route.
Old-fashioned method. Ask parents or relatives for a gift. Federal Housing Administration (FHA) and conventional mortgages allow gift funds from relatives for down payment and closing costs of up to six percent.
Modern method. When you buy your home and move, you will be cleaning out your stuff anyway--why not do it sooner and sell off items on eBay or other internet auction sites? Have an old baseball card or record collection you no longer feel as nostalgic for? Turn them into part of a down payment for a new home. Make sure you document your transactions to show where and how you received the funds for your mortgage broker.
Back to the future. Have you been wisely putting money into your company 401(k) or other retirement account? Chances are that you have been told these funds are only for retirement. Wouldn't you rather be living in your own home in retirement than renting? Check with your retirement funds administrator about pulling out retirement funds for purchasing a new home. There are special tax considerations that may benefit you for doing this, so check on those as well.
Especially if you're already well into researching the home buying and mortgage loan process, being held back by a lack of savings can be frustrating. Consult with your mortgage broker or a mortgage lender about other ways to speed up the process of collecting funds to close with a method that is accepted by FHA or conventional mortgage guidelines.
If a down payment or closing costs are keeping you from making a home purchase, don't despair--clean out that garage or invite Mom and Dad over for a nice dinner with the grandkids. It would be a shame to miss out on today's low mortgage rates and low home prices if you've already determined that buying is the right decision for you.
Dennis is co-owner and broker of record for Stratis Financial in Southern California. With over twenty years experience in the mortgage industry he has helped thousands of families purchase homes.