For most first-time home buyers, the biggest hurdle has traditionally been cash for the down payment and closing costs. In many people’s minds, the goal is still a 20% down payment. That would be $60,000 for a $300,000 home, and closing costs (title, escrow, prorations, etc.) can easily add another $6,000 to that figure.
Yes, saving being thrifty and saving money is a virtue—but that big a sum is a tall order. It will also delay the time when you can finally call yourself a homeowner. With prices rising at the rate of around 6% per year and interest rates poised to go up, waiting to save that large amount could well be unattainable—or at least very expensive.
Happily, there are many strategies for cash-shy people to buy today. Here are some of the most popular:
- VA Home Loan Program. For men and women who have served in the Armed Forces (Thank you! Thank you!), there is a program that requires NO down payment at all. The loan is guaranteed by the Veteran’s Administration. The rate on this loan, which is the best loan on the planet, is 3.25% with no discount points.
- FHA. This program, which is administered by the Department of Housing and Urban Development (HUD), has been making loans available to middle-income home buyers since 1934. At present, it requires a down payment of 3.5%. This loan is insured by HUD. As of April 1, the monthly premium will be 1.35%, but with rates at 3.25%, the monthly payment even with the mortgage insurance will be roughly the same as rent—and you will be able to deduct mortgage interest, property taxes and mortgage insurance on your tax return, saving you hundreds of dollars each month.
- Down Payment Assistance Programs. There are organizations and agencies that will provide part of the money needed for the down payment. One of the best of these comes from the California Housing Finance Agency (CalHFA). Their flagship program is called CHDAP (California Home Down Payment Assistance Program). This is a loan for 3% of the purchase price. It carries a rate of 3.25%, and no payments have to be made on it. The loan doesn’t have to be paid off until the first mortgage is paid off. Adding a CHDAP loan to an FHA loan means a total down payment of .5%–that would be $1,500 for a $300,000 home.
- Gift from a relative. In our practice, we see a great many parents helping their kids by making a gift for the down payment. Most lenders today allow the entire cash investment to be in the form of a gift. Is that relative willing to help you buy your first home? You’ll never know unless you ask!
Home ownership is still the goal most people aspire to. It is easier to attain than you might think. Call us for more details about your unique situation.