Ways to achieve low-cash-down home purchase

STARTING OUT

October 23, 1994|By Dian Hymer

How do I put a low-cash-down deal together?

Many first-time buyers have difficulty coming up with enough cash for a down payment and closing costs (the various fees associated with a home purchase). Several strategies can be used to overcome this obstacle.

One approach is to research low-down-payment loan programs. FHA, Fannie Mae, VA and state and county first-time buyer loan programs enable buyers who qualify to purchase with little cash down.

Sit down with a loan agent or broker and explore the financing options available to you. Be candid with the agent regarding your cash situation. If the broker can't help you, ask for a referral to someone who can. Ask other first-time buyers who purchased recently who they used for their financing.

One way to reduce the amount of cash you'll need to close is to reduce your closing costs. There are several ways to do this. One is to apply for a home loan that has low, or no, points (loan origination fees).

Another way to reduce your closing costs is to ask the seller to credit you an amount to cover some or all of your nonrecurring closing costs. Nonrecurring costs are paid on a one-time-only basis at closing. They include such things as title insurance, points and transfer taxes. Lenders have limits on how much they will allow a seller to credit a buyer: usually 3 percent to 6 percent of the purchase price. Also, the amount of the credit must not exceed the actual amount of the buyer's nonrecurring costs.

You can reduce the amount of your closing costs by closing late in the month. The lender collects money at closing to cover the interest owed for the current month. If you close early in the month, this figure will be higher than it will be if you close late in the month.

Another low-cash-down purchase strategy is to ask someone to give or lend you money. If the sellers don't need all their cash proceeds from the sale, they may be willing to lend you a second loan that will be secured against the property.

FIRST-TIME TIP: Many first-time buyers purchase with gift money from their parents. A parent can gift $10,000 per year to another individual without paying a gift tax. If both of your parents give $10,000 each to you and your spouse, this would add up to a substantial $40,000 down payment. If you can accumulate a 20 percent down payment, most lenders will allow all of it to be a gift.

THE CLOSING: The lease option is often touted as a way for first-time buyers to get into a house with a minimal cash investment. With a lease option, the buyer pays option money to the seller (the amount of which is negotiable) and leases the property for a period of time. At the end of the lease period, the buyer has the option of purchasing the property. If the buyer doesn't complete the purchase, the option money is forfeited to the seller. Statistics show that only a small percentage of lease options result in a purchase.

Dian Hymer's column is syndicated through Inman News Features. Send questions and comments in care of Inman News Features, 5335 College Ave., No. 25, Oakland, Calif. 94618.

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