Down Payment Options

What Are My Down Payment Options As A First Time Home Buyer?

Many first-time home buyers are sure they can pay their NEW mortgage payment when applying for a home loan, but worry about HOW they will come up with the funds needed to secure their down payment as well as the closing costs. It is important to note that down payment and closing costs are two different costs that are part of the home-buying process.

Down payments are the funds put down at closing which are applied towards the purchase price of your home. For example: If you are putting a 3% down payment on a $100,000 home, then you are putting $3,000 down and plan to borrow the remaining $97,000. Closing costs are fees charged for services to prepare the loan and the home for transfer within the sale and are disclosed to the borrower up front upon qualifying for the loan. Examples of closing costs would be appraisal fees, attorney fees, title work fees, etc. If you do not have a “nest egg” or savings built for down payment and closing costs, there are solutions. First Time home buyers have the option of a down payment as low as 3% and, for some areas (outside the City of Clinton and in IL), a USDA Rural Development loan is achievable which does not require any down payment and the closing costs can be included if you meet the income guidelines.

There are also organizations that CNB partners with that provide grants based on income eligibility which will allow up to $7500 in funds be used towards down payment and closing costs. These are based on factors such as income, number of people earning income living in the home and number of occupants in the home. If your income bypasses you from these options, you can still look at other options such as gifts from family members, seller contributions (maximums based on down payment) and, sometimes, investments and retirement will allow you to pull for first time home purchases. However, whenever you are going to dip into retirement savings, we encourage you to discuss those ramifications with your accountant as it is not always beneficial or penalty-free to do so.  

And, as always, we remind our customers that CASH is KING, except in Real Estate. If you are counting on cash assets held at home or offsite from any financial institution but are planning to purchase a home, you should deposit them into an account up to two months prior to your application in order for them to be included as part of your eligible assets on a home loan application.  If you still have questions, call us today and we can discuss your particular scenario!