As I mentioned in my previous blog I will be adding to this series to help buyers with there mortgage applications and to better understand the "why?" since the mortgage world can be a very unfamiliar place.
Volume 2: Assets; Acceptable sources.
As I mentioned last time- Cash is high up on the list of NO in the asset world. (99% of the time)
So where can you get money for buying a home?
While Checking and savings are the number one source for down payment and closing costs here are a few that would also be OK
Gifts:
For most traditional financing a gift from a relative is a perfectly acceptable source for down payment. To document a gift a lender will need to see: Donors Ability, Transfer and Reciept of the gift along with a gift letter. The gift letter is easy- it is a form letter that we will provide you when needed. The rest- also not that difficult. Think paper trail. We need to show the donor has the funds, they took them out of their account, and you deposited them into your account. Don't worry about doing this ahead of time. Speak to your LO, it is easier to do it the right way than to go back and fix an error. Just be sure to confirm the donor is willing to give you money, and how much. (Sometimes "I'd be happy to help" means they will help you load the moving truck)
Retirement accounts:
While I don't particularly like to see retirement assets depleted - if it is your only option to buy a home, it is not a horrible thing. You can withdraw from 401k, 403b, IRAs etc for the purchase of a home. There are limitations - so be sure to check with your retirement plan to ask. Most cases you will not have any penalty for a home purchase, but you will have to pay taxes since that money was probably put away pre-tax, and the IRS never forgets you owe them money. 401k loans are also an option, but be sure you pay attention to the payment, and think about what that will do to your net check after the loan.
THE SELLER:
This one is a little trickier- for a traditional Arms Length Transaction a seller CAN NOT give you money towards a down payment, but they can help you with closing costs. for most loans that will flirt between 3-6% of the purchase price if you can negotiate it. Just keep in mind that this is a business transaction at the end of the day, and you can't expect a seller to accept a low ball offer and pay closing costs at the same time, so be realistic when you make the offer up front. Additionally, the seller cannot pay more than actual closing costs- so have your Mortgage person run an estimate for you before you make an offer to be sure you dont ask for too much, or too little.
Grants:
Some states have grants, some non profits have grants. but many of these grants come with income limits so low it would be hard to qualify for a mortgage. Some states have such rigid and expensive handcuffs with there programs as well, so buyer beware.
Home Equity:
If you own a home you can use the equity from that home to buy another. Typically you are not allowed to borrow money to borrow money- but this is a loophole. You are borrowing your own money when you pull equity from your home- you will just need to qualify for that payment in addition to your existing debt and future housing payment.
Second mortgages:
They are still there, and becoming a little more common. This will not eliminate the need for money, but it could help avoid PMI.
How about NO Money Down?
If you are a Veteran- the VA is a great way to buy, USDA is a close second for $0 down. In both cases you can have the seller pay your closing costs. Conventional loans require a minimum of 3% down, FHA 3.5% down. Here is where you really need to speak to a knowledgeable Mortgage Guy/Gal to sift through your scenario and see what fits you the best
As I mentioned in the first volume for assets- it is complicated. So I am only touching on the most common and as I see it, relevant pieces to help the average home shopper.
Stay tuned for Volume 3 and Happy Hunting!
Robert Rauf
Mortgage Loan Originator NMLS# 248937
http://www.homebridge.com/RobertRauf
or my blog: http://activerain.com/blogs/rrauf
Office: (732)908-4868 Cell (732)740-0175
RRauf@HomeBridge.com
www.RobertRauf.com
Since 1987 I have been helping my clients fulfill their dream of home ownership! HomeBridge Financial Services, Formerly REMN, HomeBridge Financial Services is located at 9 Grand Ave, Building 2 Suite A Toms River, NJ 08753. NMLS #6521. New Jersey Licensed Lender and Mortgage Banker #L041053. Visit www.Homebridge.com for more information. NJ Mortgages, New Jersey Mortgages, Mortgages in NJ, mortgage in New Jersey, Mortgages in New Jersey, Toms River NJ 08753, Toms River NJ 08755, Brick NJ 08723, Brick NJ 08724 Mortgage in Ocean County NJ, Mortgage in Monmouth County NJ, Jackson NJ 08527, Howell NJ 07731, Lacey 08731 08734, Beachwood 08722 Bayville 08721, Manchester 08757 08733, Manahawkin 08050, Robert Rauf is a Licensed Mortgage Loan Originator in New Jersey
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