When there are a lot of homes for sale and it takes a long time to sell them – that's a "buyer's market." In most of the country, that's the current situation. If it is a buyer's market where you live and you're looking to buy a home, you are in a strong position to negotiate for lower prices and incentives.
The guidelines for buyers' incentives do vary from loan program to loan program, so make sure to get pre-qualified first so you can ask your loan officer about the allowable incentives for your loan program and down payment. Let's talk first about how much you can ask for. If you are putting ten percent or more down, you can ask for up to six percent of the price of the home. If you are putting less than ten percent down, you can ask for three percent of the price. Nothing guarantees you will get everything you ask for, but sellers are generally willing to negotiate and give you something.
The next thing you should do is make an offer and ask for those incentive funds to be applied toward your non-recurring closing costs. By applying the incentives toward your closing costs, you lower the amount of out-of-pocket cash you need to close the deal. Otherwise, you would have to come up with a down payment and the closing costs.
There are two types of closing costs: non-recurring costs and recurring costs. Non-recurring costs are things like points and fees that you only pay once and never pay again. Recurring costs are things like insurance and property taxes that you continue paying over the time you own the home. Most loan programs only allow you to apply incentives to pay non-recurring costs. FHA and VA loans are exceptions.
Now comes the hard part: making sure no one takes advantage of you. Sometimes a lender may just inflate your loan costs to use up the incentives you just negotiated. You need to work closely with your real estate agent and your loan officer to make sure you use all of those funds for your benefit. Let's explore this further.
If you can get a 5.75% fixed-rate loan for a one point loan origination fee, you can probably get 5.625% for one and a half points and 5.5% for two points. Remember, interest is a recurring expense whereas points are paid at closing and never recur. Therefore you will almost certainly save money on a loan with a lower interest rate but higher points.
If you don't think your lender is getting you the best deal, talk to him (or her) directly and ask what a loan officer from another company could get you for the same costs. If you don't want to play hardball like that, get your agent to play hardball. The agent wants you to close on the real estate deal because if you don't close, they don't get paid. Ask for help if you need it.
What you don't want to do when you make an offer in any kind of market is ask for a "carpet allowance." Most lenders won't allow carpet allowances because it is just cash in your pocket and there is no guarantee the money will actually be spent on a new carpet. If the carpet really needs to be replaced, just ask the seller to replace the carpet before you close. That's allowable and it still saves you money replacing it yourself after you move in.
Also, don't load up your offer with a lot of contingencies, especially when you are pursing incentives. An example of a contingency would be, having to sell your home to buy this one and making your offer contingent on that sale going through. Loading up your offer with contingencies makes it less certain you will actually close, so that makes it less likely the seller will offer you lots of financial incentives. The one contingency you always want to include, especially in this market, is that your offer is contingent upon the property appraising at the purchase price by the lender's appraiser.
Good luck!
# posted by
Tara O'Brien @ 4:01 PM
Although many people can afford a mortgage payment and associated costs to owning their own home, the thought of coming up with a substantial down payment often stops them from taking the plunge. Charity organizations and federal institutions are available to these buyers to assist with this problem. We will discuss what can be done to assist the home buyer in need of financial assistance in this article.
What Are Assistance Programs?
Down payment assistance programs, both non- profit and federally run, help interested home buyers with procuring down payment on a home. The seller of the home assists the buyer by contributing a portion of sale proceeds to the home buyer at the time of closing. Because federal and state laws dictate that the seller cannot give the funds directly to the buyer, the assistance programs provide a work around so that the sale stays within federal guidelines. The gift amount is determined by the type of loan that is being applied for.
How Does This Work?
This is what happens - the seller enrolls the home in a down payment assistance program. They will contribute the amount the buyer needs for closing. A fee applies here. When buyer and seller go to the closing table, the assistance program that the seller has enrolled in then wires the needed funds to the selling agent. By law, the seller can have no part in the transfer of any funds.
What Agencies Can Help?
The best source of funding comes through the Federal Housing Authority (FHA). The FHA is a branch of the Department of Housing and Urban Development (HUD) which was created in 1965. The prime responsibility of the FHA is to administer government home loan programs. Because the loan is insured by the FHA, the lender is protected in case of default.
The FHA also looks at debt to income ratios differently. The standard in the lending industry is a debt to income ratio of 28/36%, but the FHA has a standard of 29/41%. This offers the buyer with less than perfect credit an advantage.
The FHA also works with people on however many loans they wish to pursue. This is not just a one shot deal for consumers. A real disadvantage of an FHA loan is that there are limitations on the size of loan they will administer. This is not a disadvantage to people who are pursuing an FHA loan. People that require this type of assistance are not looking to buy a home costing $250,000.00. FHA guidelines are readily available by doing a search on the internet.
What Are Charitable Down Payment Assistance Programs?
There are other organizations that administer down payment assistance programs that are not run by the federal government. The most popular today are AmeriDream, Inc, The Nehemiah Program, and Partners in Charity. Whenever dealing with any charity organization that handles assistance programs, insure that they are members of the Home Gift Providers Association (HGPA). This watchdog organization has a list of ethics and best practice guidelines for down payment assistance programs.
If you are dealing with these charitable organizations, always ask questions as to their involvement in the community. Do they partnership with local businesses and organizations? Will they provide you with a current financial stability report? Ask them if they allow borrowers to use their contribution for paying off such things as bad debt or to settle judgments against the borrower. This is frowned upon by the HGPA. Try to find out if the organization gives kickbacks to local realtors or mortgage lenders. If you find that they do, then know that these institutions are less than trustworthy, and you probably shouldn't deal with them.
Be aware that HUD doesn't approve gift programs, but leaves it up to the mortgage lender to insure that the organization you are dealing with follows HUD guidelines as listed in HUD Handbook 4155.1 REV-4, CHG-1 Paragraph 2-10(C).
Other Issues
Be aware that the seller may inflate the selling price of the home you are interested in to recoup their fees that may be required to enroll their home with an organization. Check the prices of homes comparable to the home you wish to buy in the locale to see if there is a significant difference in the price of the home.
Although many people are discouraged by the requirements for buying a home, there are organizations that are available to help them through the process. Doing your own due diligence will go a long way to help you determine not only whether you are capable of paying a mortgage, but what costs and fees are necessary. Take advantage of the resources listed here to help you in buying your home.
# posted by
Tara O'Brien @ 12:18 PM
