For most prospective home buyers two hurdles continue to present a challenge; sufficient credit and down payment including closing costs. While these challenges are not new, they have been more profound following the housing collapse of 2007 and continue today. The result has been tougher underwriting guidelines and increased down payment requirements.
Surprisingly, even as home buying is forecast to accelerate its pace from previous years it is crucial borrowers do not leave available money on the table. 100% financing is all but a thing of the past unless you are a qualified veteran. However, many subsidies otherwise known as grants or credits remain available which greatly close the gap of traditional financing resulting in allowing borrower to get as close to zero down payment as possible.
Many real estate professionals and even consumers have heard the phrase, “there are enough programs to choke a horse.” Yet for many securing those programs have proved an illusion. The key remains becoming educated on what is available, as well as how the programs work. Typically, the programs can be broken into three categories; Federal, County, City and Local.
Serious homebuyers realizes “you do not get something for nothing” yet the goal in exploring what is available for your specific situation will come down to how much time you are willing to invest in obtaining information. Traditional financing typically is available with as little as 5% down or if you are using FHA the amount is 3.5%. Using a mortgage of $150,000 your obligation would be $5,250 to $7,500, not including closing costs.
Interestingly, a variety of mortgage programs allow for subsidies or down payment/closing cost assistance. While many real estate and mortgage professionals will make you aware of this fact, do not take for granted it is automatic. Therefore, as part of your strategy in identifying your home and securing a mortgage loan is finding out exactly what level of assistance you are eligible for. Once that is known, the next step is to contact those agencies who have funds available for your transaction. These programs come with additional paperwork or other time elements, but for those who map out a solid strategy they represent a nice alternative of having to come up with cash most simply do not have.
How does it work?
Some programs offer tax incentives, so even though you may have to pay your down payment upfront, a portion may be returned in subsequent years as you file your income taxes. Other programs offer direct grants as the key or motivation for agencies who provide them is to increase homeownership and improve the municipal tax base. While some programs do represent “free” money, the major stipulation most of them have is owner-occupants who agree to reside in the property for a minimum number of years.
Using Los Angeles as an example; three solid sources which are available are:
1. Federal programs. Mortgage Credit Certificate. This is a Federal program designed to lower your tax burden, however the benefits are significant.
2. County programs. Counties use a variety of programs aimed at first time buyers.
3. City programs. Similar to Federal and County programs, Cities also use a variety of programs.
(for your specific state simply search housing programs for Federal, County and City).
There is more to using these programs but the encouragement is millions across the nation have invested time in doing the research so they can reduce their cash exposure while at the same time participating in the low interest rate environment we are experiencing. As the home buying season is right around the corner, now is the time to make sure you don’t leave money on the table.