When most people think of buying a home, their minds immediately go to the standard process of saving for a down payment and getting a traditional mortgage. But there are other options available that can help you reach the goal of homeownership. Some can make saving the down payment a non-issue while others help current homeowners looking to move from their current home to a new one.
So, before you begin walking the most traveled path for purchasing a home, see if these options will help you get there faster.
Ways to Skip Saving for a Down Payment
One of the biggest hurdles between most people and homeownership is the down payment. Most conventional mortgages require borrowers to put down 20 percent of the sale price of the home. And that is no small feat.
However, certain loans require smaller down payments. For example, FHA and VA loans often have less stringent requirements, as well as USDA loans. Specialty loans on Fannie Mae and Freddie Mac foreclosures are also available without a full 20 percent down payment. The exact amount required can vary over times, so it is important to see what options are available at the precise time you are looking to buy.
Another Option for Down Payments is Gifts. Certain family members can provide funds for use towards the down payment without some of the time-based eligibility restrictions that can affect the buyers own savings. However, only certain familial relationships qualify, and the person providing the gift must legally attest to the fact that the money is a gift and not a loan.
Those within certain income limits may qualify for down payment assistance through local government organizations. Certain states, counties, and other municipalities provide funds for down payments to individuals who meet specific criteria. Often, only those buying a primary residence can apply, and a minimum stay in the property may be required before a sale. Failing to meet the terms often means the funds must be paid back, so it is important to understand the details prior to accepting assistance.
Bridging the Gap When Selling One Home to Buy Another
Another situation that complicates the home buying process is when the borrower is currently paying a mortgage on a primary residence they intend to sell. Trying to coordinate the timing of a sale and purchase isn’t easy, and juggling multiple mortgages only makes things more complex.
It is common for current homeowners to have their “down payment” tied up as equity in their current property. That means they have an appropriate amount of assets, but it might not be accessible as cash. Additionally, certain home loans have restrictions regarding whether they have to be associated with primary residences. Additionally, some banks may be hesitant to offer a favorable mortgage rate on the new loan if the amount remaining on the current mortgage is high.
In some cases, the best course of action is to consider bridging loans for the house purchase. What these loans provide is a short-term financing solution to help you transition from one mortgaged property to the next.They can be used to tap your current properties equity to obtain a down payment or can pay the current mortgage off making it easier to obtain one on the new property. Then, once the current property sells, the borrower simply pays off the bridging loan and continues with their new mortgage.
Otherwise, the best alternative is often to wait until your current home sells before jumping into the market. In those cases, you may need a temporary housing solution for the interim.
The Traditional Method
While some of these alternatives can make buying a home easier, there is also nothing wrong with going the traditional route. In fact, it can be the smartest move financially in most cases. So, if you aren’t sure about any of these other methods, or don’t have access to them, go ahead and save the 20 percent first. In the end, there is no such thing as having too much savings for a down payment.
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