If you’re thinking about buying a home and you’re short on cash, here are a few things you might want to consider as it relates to downpayment and closing costs...
There are two main mortgage types; government-backed loans, and government-insured loans. Government-backed loans are Fannie Mae and Freddie Mac while government-insured loans are FHA & VA.
Government-backed loans aka conventional loans with 20% down allow you to get up to a 6% seller credit for cooking. Buying a home using a conventional loan with less than 20% down results in a max seller credit of 3%. Using a $600k home that is $36k you can get from the seller to pay closing costs assuming 20% down. Using just 10% down and you can get$18k back. Closing costs vary, but typically range around 3.5% to 4% of the purchase price. Keep in mind a seller credit can pay discount points yielding a lower rate and monthly payment paid for by the seller of the home you’re desiring to buy.
FHA/VA loans allow up to a six percent seller credit for closing cards. FHA loans require 3.5 down and Va loans require 0 down. Both allow for a 6% seller credit respectively which can be used to pay closing costs and or discount points to help lower your proposed mortgage payment.
Why this is important if you only have the money for the down payment and the seller, the house pays the closing costs for you, you can move the needle app in your purchasing power because you’re using all of your money for the down payment.
By using a good realtor, and reputable lender, you have a recipe for being able to buy a home with only cash for a down payment and potentially even a lower rate of interest at the same time than you would if you bought the house with using your own money paying for our own closing costs and lower mortgage rate.
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