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Buying Your First Home?
Money Isn’t Everything! With a little legwork
and some innovative financing you may be able to buy your
first home with very little or NO Cash.
Nobody likes flushing money down the drain but that’s
what you’re doing when you
hand over your rent money every month. The moment it leaves
your hand your money is working for someone else and not building
equity for you and your family. If you feel it’s time
to own your own home here are some things you need to know
before you make your first move.
So you have NO CASH? –If you have good
income and credit but lack the cash for a
down payment & closing costs look into veterans loans,
federal, regional or local home
buyers programs that often require no down payment (like FHA
Loans, VA Loans,
Farmer’s Home Loans, HUD Grants (grants are “gifts”
that don’t have to be paid back)
and Enterprise Zone Entitlements.
THE SELLER may be willing to help finance the deal!
– There are sellers out there who are willing
to help you with the financing and sellers who are willing
to “take back” financing (let you pay monthly
on a mortgage with no down payment and low closing costs).
They might be hard to find, but if you can find a seller willing
to help you out it may be the key to getting into your own
home.
Have you thought about EQUITY SHARING with family
members or investors? – An equity sharing arrangement
gets YOU the cash for the down payment while your partner
gets a share in your home. You make the monthly payments,
pay the taxes and live in the house. In time you will either
buy out your partner or sell the property and split the profits
accordingly.
Have you been contributing to a RETIREMENT or PENSION
PLAN? - Don’t forget
you may be able to get a loan for your down payment by borrowing
against your
retirement plan, or you may be able to withdraw enough cash
from your plan to use for a down payment without penalties
or taxes.
What if you have SOME CASH? – If you
have enough cash for a small down payment then look for a
federally insured mortgage that requires a down payment as
low as 3%. Obtaining private mortgage insurance (PMI) may
enable you to obtain financing from a traditional lender with
a smaller down payment than usually required.
If you’re buying a NEW HOME you may be able
to obtain a low down payment financing plan from the builder!
– The builder most likely had to borrow the money to
build the home and he wants someone in it as soon as possible.
They may offer special financing arrangements to entice you
to invest in their home.
Credit history a problem? “LEASING WITH AN OPTION
TO BUY” may be an
option for you! – If your credit history needs
some work (if you’ve had a bankruptcy in the last 2
years, if you have less than 2 years continuous employment
in the same field etc.) and you know you will have difficulty
securing a mortgage, you may find a seller that will “rent”
you the home for a specified period of time (enough time for
you to improve your credit rating). The rent will include
an “Option Fee” that will go towards your down
payment when you are ready to buy.
What do you do if you are lucky enough to have ALL
THE CASH you need? –
Having cash puts you in a strong negotiating position; you
may be able to buy at bargain prices because you represent
a simple transaction and a “sure thing” for the
seller. Use this to your advantage when you negotiate.
How do you know WHAT SIZE MORTGAGE you qualify for?
– Lenders usually use
a formula based on approximately 29% of your gross monthly
income (before taxes) to calculate the maximum amount you
can borrow for a mortgage.
What affects this amount? – The size
of your down payment and your total debt picture including
your revolving debt (credit cards, other loans etc.).
What can you do to INCREASE THE MAXIMUM AMOUNT you
can borrow? -
Reduce your debt (pay off credit cards and other loans) to
improve your income-to-debt ratio. This small step can qualify
you for a larger mortgage… and a better home!
What exactly is considered INCOME? –
Income can be more than just wages, don’t forget to
count bonuses, commissions, overtime, seasonal, part-time,
social security and pension income, dividends, interest, alimony
and child care payments, rental income.
What if you want to BORROW MORE than “they”
say you can afford? - You may
be able to qualify for a higher mortgage if you can prove
that you have been making
regular, on-time rent payments that are higher than the maximum
allowed.
Smart financing can INCREASE THE AMOUNT you can borrow!
- Adjustable rate
mortgages (as opposed to fixed rate) can temporarily lower
your monthly payments and enable you to afford “more
house”. You can probably count on a rate change every
year, usually resulting in higher payments.
Don’t forget TAXES & INSURANCE!
– You should estimate about 2% of the
purchase price for property taxes and 1% for insurance, then
divide by 12 to get the
amount you need to add onto your monthly mortgage payment.
Example: $100,000 house would cost approx. $250/month for
taxes & insurance. Your lender will take this into account
when determining your maximum monthly payments, so should
you.
What is PRE-APPROVAL? – This is not
a full loan commitment from your lender but
it is a formal process usually involving a credit check and
employment verification.
What is PRE-QUALIFICATION? – Less formal
that pre-approval, this is more an
estimate of your borrowing power. This is also not a loan
commitment from your lender.
What good is being pre-approved and pre-qualified?
– Pre-approval and Pre-qualification demonstrates to
brokers and sellers that you are serious (not just a looky
loo) and have a good idea of what you can afford. Your offer
will usually be preferred
over one from someone who has never met with a lender.
Beauty versus Convenience - Don’t lose sight
of the BIG picture when looking for a home!
Are big trees in a fenced backyard with a white
picket fence enough? No! You should be realistic about what
it will be like to live in a prospective home.
Create a mental picture of each room in the house
and ask yourself how you and your family will live in it:
| Kitchen |
- Compact kitchens can be convenient,
but do they suit your lifestyle?
- If you have, or are planning,
a family, does the kitchen have enough room for a
high chair?
- Is it carpeted (will it show
food stains)?
- Is there a counter right next
to the refrigerator for unloading groceries?
- Is the kitchen easily accessible
to the porch or patio for summer barbeques?
- Can the kids get to and from
the kitchen easily from the yard? Will they have to
troop through the living room to get a drink on a
hot summers day?
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| Bathrooms |
- Are there enough?
- If you entertain, is there a convenient powder
room for company?
- If you have children, is there a “mud room”
and bathroom close to the back door for those “emergency”
trips in from the yard?
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| Front Entrance |
- Is it conveniently located for visitors?
- Is it screened from the rest of the house to deflect
hot or cold blasts of air, and nosy glances.
- Is there a handy coat closet?
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| Living Room |
- Is it centrally located where it will be used by
the whole family or is it separate and out of the
regular traffic pattern of the house, where it can
offer a quiet and tidy space to relax or entertain?
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| Family Room |
- Is it adjoining the kitchen so you can keep an
eye on younger children while you make meals?
- If your children are teenagers you may prefer the
family room in the basement, where the drum set, loud
music or multitude of noisy friends won’t disrupt
the whole family.
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| Master Bedroom |
- Is it large enough?
- Is it private, are there built in buffers like
closets, stairwells, halls or bathrooms between the
rooms?
- Is it fully self-contained, does it have it’s
own ensuite and adequate closet space?
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| Garage |
- Does it have enough room for all your vehicles
(or stuff)?
- An outside door to the garage can be a convenient
access point from the yard.
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| Basement |
- Do you need one for storage, or expansion? Make
sure it’s suitable for your use.
- Does the basement have an exterior entrance handy
to the yard or driveway?
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In Conclusion:
It is possible for you to own your own home and make your money
work for you! Do
your homework and be sure you have a clear picture of your financial
situation before
you start.
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