This article was taken directly from the Lewiston Morning Tribune, Wednesday, March 5, 2009.
FHA loans allow creativity
Frugal Homeowner
Wednesday, March 4, 2009
Q: I'm engaged, and my fiance and I would like to take advantage of the great buyer's market for our first home. We have good income and credit, but are lacking in the down payment department. Any ideas? - D.U.
A: This is a great first-time buyers' market. The standard Federal Housing Administration 203(b) program is an excellent mortgage for first-time buyers and has perhaps the most creative assortment of down payment options out there right now.
The following are some of the many options to help you shake the down payment money tree:
1. Bridal registry accounts: This is one resource you shouldn't overlook. Since 1997, FHA has allowed friends and relatives to contribute to an account for down payment and closing costs for engaged parties. In fact, similar accounts can be set up for other occasions (e.g. graduation gifts, etc.) for anyone who's a potential homebuyer.
Here's how it works: You contact a lender who originates FHA loans and set up a federally insured depository account in both you and your fiance's name. Funds may be deposited by friends and relatives directly into the account, or cash or check sent to you to for deposit. Not only will this approach help you accumulate your down payment, but money will be tracked using FHA guidelines, in preparation for your loan application. And yes, you can use the money to close on a home prior to being married. In fact, the funds remain under the control of the individuals for whom they're deposited and can be withdrawn at any time prior to use.
2. Gifted funds: Family, close friends (with no financial interest), employers and even charitable organizations can gift funds to you for all or part of the down payment. The primary criteria are that funds have no repayment strings to the giver.
3. Loans from immediate family members: Loans received from family members must be calculated in your debt ratios for qualifying, but can be either unsecured or security against the property you're purchasing.
4. Rent credit: If you desire to purchase a home you're currently renting, the amount of rental payments that exceed the fair market rent can be considered as part of the cash investment. For example, if fair market rent for the property (as determined by the lender and appraiser) is $850, but your rent is $1,000, $150 each month can be counted as cash contribution applied at closing.
5. Sweat equity: If you perform any labor or contribute materials to a property prior to closing, those amounts are considered cash contributions. This applies to both new and resale construction.
6. Sale of personal property: If you plan to sell personal property to generate cash for the purchase (like a car, motorcycle, boat or eBay sale), those funds can apply to your down payment. This would, would, however, require a third-party estimate of value.
7. Sales commission credit: If a family member is a licensed real estate agent and is entitled to commission from the listing/sale of your house, he/she can gift that money to you for the purchase.
Not only is the market ripe for first-time buyers, there are a plethora of creative down payment options through programs like FHA. There's no need to let the lack of a large cash down payment stand in your way.
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Julie Garton-Good is a Realtor, international speaker and syndicated columnist. Her e-mail address is jgg@juliegarton-good.com.
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