Where can aspiring homebuyers find the extra cash they need to purchase a house?
This is a great time to buy a home. Yet, just because hopeful homebuyers recognize the opportunity, doesn’t mean it is as easy as TV makes it out to be. Having said that, some people are finding it difficult to fund their next purchase. If this is you, don’t worry. You are not alone. A lot of Americans are having problems saving enough for a down payment or to cover closing costs. For others, it is about biting the bullet on slightly higher payments so that they may own instead of rent. Or, maybe it is just moving expenses. Either way, cash can be a significant obstacle. So where do you come up with that cash?
In many cases, homebuyers don’t need as much money as they think. Down payment requirements continue to drop, even on more traditional types of mortgage loans. Even without getting into creative financing, and alternative mortgages for real estate investors, many will find they need 3.5 percent of the purchase price or less down. Closing costs can normally be financed. If you haven’t done the math on how cheap today’s low interest rates make monthly house payments, you should look into it. Chances are, even with mediocre credit and an average income you could get into a $230,000 home or condo with $0 to $10,000 down, and for between $1,000 and $2,000 a month. However, what if you do need a little more cash, or help affording the payments?
Finding the Down Payment
What if you do need a higher down payment to buy the home you want? There are probably more places to find it than you think. Saving is normally a terrible and futile option. Yes, there are some probably having a panic attack at this comment, because they have heard the opposite. But the truth is that it is really hard to save fast enough to keep ahead of the market. Right now you’d have to save faster than home appreciation, inflation, and interest rate hikes. They are all working against your savings account. That’s while living costs are rising and rent is going up.
Friends and family may be a much better resource than you think. Many people don’t feel great about asking those closest to them for money, but it is all in how you look at it, and present it. Right now, interest and returns on everything except for real estate are really non-existent. If you can borrow the down payment at even five percent interest for a short period, you’ll be doing them a huge favor. There are even websites where you can raise or borrow cash from an even larger pool of your peers.
Do you have a 401k or IRA? You may be able to borrow against your retirement account or use some of it towards a down payment. After all, you’ll need housing in retirement too. Talk to your tax person, and you may not wind up with any net penalty for the move.
Then there are down payment grants. There are thousands of down payment assistance programs and grants across the United States. Some offer low rate loans with deferred payments. Others are true grants that give you instant equity in your new home and reduce the amount you need to borrow.
Finding the Income to Buy a House
What if the house you really want is going to cost a little more than you want to pay each month? Perhaps you have a young business, got out of school recently and are just getting warmed up in a career. None of these should be a reason to pass on a good opportunity. What can you do then?
Can you take a side gig for a while? How about doing some freelance consulting in your field at high hourly rates in your spare time? Or maybe you can get a part time job where you can double dip on discounts on things for your home? That could be a home improvement store, builder supply store, service company, furniture store, or something else.
If you have the cash, or the seller will contribute to your closing costs, you could buy down the interest rate, and lower the payment. Many also tackle this by taking an adjustable rate mortgage. Just make sure this isn’t going to put you in a worse position in a few years from now.
Start Modest, Upgrade Later
How about buying the house you can afford now, and upgrading later? There are a couple ways to tackle this. It could be buying a modest home, and then getting a home equity loan to expand the property and remodel as the value of your property rises. Or this can be done as you set aside more cash.
The bottom line is that it is a great time to buy a home. You may need less money than you think, and even if you don’t, there are a lot of resources and creative solutions to be tapped.
