CarolinaMortgageConnection.com

For the last five years, many homebuyers have only needed enough money for a home inspection, a earnest money deposit and a appraisal to buy a home. Unfortunately, last quarter’s mortgage meltdown caused the mortgage industry to act swiftly to make it a little more difficult for first time buyers to purchase their first home, but not impossible. 

Don’t let all the hype and bad reporting mislead you. You will not need a massive stash of money to buy your first home. Here in the Charlotte area, you will need at a minimum $500 for an Earnest Money Deposit (which is applied to your mortgage), $400 for an appraisal, $300 for a home inspection, 3% of the sales price to cover your closing costs (which includes taxes, insurance, mortgage application fee, discount points, and the attorney). FHA Loans are once again in vogue because of a lower mortgage insurance rate and interest rate) but they only lend up to 97% of the sales price, meaning you will need an additional 3% of the sales price (minus your earnest money deposit).

You can negotiate to have the sellers pay some or all of your closing costs, however if you plan to save the entire 6% and don’t use it all, what’s wrong with that?

So here are some ways you can come up with your downpayment.

• Have a family member give it to you. Yes, this is ok as long as they are related to you and can provide you a gift letter noting the amount. Up until March 2008, the seller can make a donation to a non-profit like Nehemiah and the non-profit will give the money to you. Unfortunately, some lenders have abused this program which is why programs like this are being shut down.
• Borrow from your 401k. Most often, you can borrow from your 401k one time for your first home without penalty. Consult your accountant on this. Your fund manager may have a cow but it is your money.
• Take a second job. You don’t need sleep do you? If you have other talents, consider taking a second job or working some overtime at your current job.
• Sell items of value you no longer want or need. Jewelry, electronics, computers, whatever. Hit the ebay and craigslist and start selling. The advantage to this is that by doing this, you won’t have to pack and move this stuff you will not use to your new place.
• Successful Legalized Gambling. While I don’t condone this practice, if you participate in these activities and win, why not. I’m not good enough at anything to make this work for me and most of the folks I know lose far more than they would ever make.
• Tax Refund. If you have a refund coming to you, it probably will not be enough to make up the entire balance but it will help you with 1/2 or a 1/3rd of what you need.
• Sell some stock. If you’ve make some money in the market, you sell some of your stocks to help with that downpayment. I wouldn’t wipe out your entire account though since you will need it someday.
• Place yourself on a budget. This is the most rewarding but requires some dicipline. Look at your personal budget and find some ways to save. Bag your lunch instead of eating out every day, downgrade your cable service or cut it off all together, disconnect your home phone and use just your cell phone, etc.

Here are some ways not to do it:

• Put it on a credit card. This is among the major mortgage no-no’s. When the underwriter finds out you borrowed your downpayment on your credit card, say bye-bye to your mortgage and your earnest money.
• Have your agent give it to you. Unless they’re related to you, FHA will not allow your agent to give you money towards your downpayment. Plus, that’s just lazy on the agent’s part. Instead of negotiating the closing, they’re giving money out of their pocket. Just think, if they’re that bad at handing their own money, imagine how well they’re working for you. Three people I don’t want to receiving a discounting from: my doctor, my lawyer, and my real estate agent because my health, my life, and my assets are too important. I digress.
• Take out a loan. Don’t even think about it.
• Steal it (Bank Robbery, Shoplifting, etc). This should go without saying. Stealing, selling drugs or your body isn’t worth it but you will most likely make the evening news.
• Stop paying bills to save for a home. Well, if you do this, you won’t have the credit to get a mortgage.
• Unsuccessful Gambling. Well, you won’t have any money anyway and probably will resort to stealing, selling drugs, and your body.

Hope this helps. The good news is that its easier than you think.

Sincerely;
Jonathan Osman
The Charlotte House Hunter
Charlotte NC Homes, Charlotte Real Estate

Reprinted with permission.