When many people think of a down payment for a house, they immediately think about 20%. What they're thinking of is what's called a 20% Down Conventional Mortgage. But, did you know that few buyers these days actually put this much down on a home? These days there are many different options available to buyers and I plan to discuss some of these in this blog!
Let's start with some 100% LTV (loan-to-value ratio) loans:
- VA Loans are loan programs designed to provide government-backed loans for veterans, active military, and widowed spouses. You can only use one VA eligibility at a time, and only on primary residence.
- USDA Loans are also government-backed or direct loans for rural and some suburban areas for buyers that can stay under certain income requirements. Bad news here is that it excludes the City of Lawrence. Good news? It does include Baldwin City, Eudora, rural Douglas County and other areas beyond the city limits of Lawrence.
Next we can move on to some low down payment options:
- FHA Loans are a common product many people are probably familiar with. FHA loans typically come with a 3.5% down payment and are designed to assist buyers with credit challenges. For example, it's not impossible to get approved with a credit score just under 600. FHA loans are great for first-time home buyers and buyers that can't quite yet afford a conventional mortgage.
- Conventional Loans. Yes! Believe it or not, it is possible to get a conventional loan and put less than 20% down. Some conventional products offer as low at 10%, 5%, and even as low as 3% down! We are seeing this more and more these days. This may be a great option if a buyer has strong credit and good employment, but they just lack the cash for a bigger down payment.
We can also talk about some assistance for closing costs and down payments. There are a myriad of options out there, far too many to even begin to list here! And not all options are available all the time. Some function as grants and last only so long as the program has money to fund it. And there are other options as well, some I'll list below.
- Lender Grants: There are as many different grant programs out there as there are lenders. This is one of the reasons we recommend meeting with more than one lender when shopping for a loan. Some grants are designed for closing cost assistance and others for down payment assistance. Usually these come with stipulations, like being a first-time home buyer or meeting certain income or debt requirements.
- Government Grants: There are some cities out there that will pay you to move there and buy a house. One might question why a city would offer such a thing, but for those who have to move for a job, it's definitely something to look into!
- Seller Concessions: This is a red-hot topic with home buyers. Is it a good idea to ask a seller to pay for your closing costs? The answer is it depends. In a strong Sellers Market like Lawrence, asking for closing costs is a good way to lose the house to another buyer. It puts you in a weaker position if there are multiple offers. If, however, a house has been on the market for a while, there may not be any harm in asking. It's rare these days, but we do see it from time to time. If you're thinking of asking for seller concessions, make sure you have a long talk with your agent before proceeding!
- Mom & Dad: They have money don't they? Ask them to help! All joking aside, this is actually an extremely viable way to get some help to afford that house. And it's probably more common than you think. Different lenders have different rules for this scenario, so it's good to check and shop around if this is part of the plan.
- Go Fund Me: I hear this is something people do these days. Not for me. If this is something you want to try to help out your home buying process, go for it. Personally, I do give to local housing-focused charities, but I'm not just handing friends and family my hard-earned cash just because. Just not part of my philosophy. But I suppose, if it works it works. I'd be careful going this route, and as an agent, it's not something I would realistically recommend to a client.
So that's a quick run-down of some options available to home buyers out there, but I do want to talk about one more thing designed to financially assist home buyers: R+K Real Estate Buyer Gift Rewards. Now this is part of my philosophy. In fact, it's also part of our business model at R+K. While it's not part of the transaction and it's not designed to help a buyer purchase a home, it can be a pretty powerful reward to new home buyers after the transaction. Think of it as grant money in the form of a gift card that we give to our clients that they can put into their new home!
Find out more about our Gift Rewards Program here. Think about how even more powerful our Rewards Program is when stacked with some of the lender products discussed above? We promise there are no other real estate agents in Lawrence that offer anything like it! For more details or for more specific information on local lenders who offer the products discussed in this blog, contact us anytime!
-Ryan Desch Broker/Owner, Realtor
