Real Estate Information Archive

Although it doesn’t rank as high as some other stressors, purchasing a home is still considered a stressful – though exciting – life event. Here are three easy ways to decrease home buying stress:

Stress buster number 3: Be prepared

Interest rates were really low last year, and my husband and I just weren’t sure if we were ready to buy yet. We wanted more money in savings and for a down payment. Take a close look at your situation and decide if buying a home is a step that you are truly ready to take. If you think you may move from your city in a year or two, or if you aren’t sure what your financial outlook will be, it’s OKAY to wait. You’ll only be setting yourself up for future stress if you force a big purchase you’re not ready for.

Stress buster number 2: Be realistic

There are certain priorities that we decided on before starting our home search. For instance, we prefer two bathrooms, and we also have a favorite neighborhood we can see ourselves living in for a long time. But we also know we can do without one more bedroom, and we can live with popcorn ceilings. There’s nothing wrong with coming up with a list of must-haves, but flexibility is the key to staying stress-free.

Stress buster number 1: A Realtor®

My Realtor® is my secret weapon and number 1 stress buster because he knows exactly how to handle everything that comes our way. He answered our seemingly endless questions and gave us helpful advice about everything from the transaction process to being good homeowners. I never had to worry about what our next step was since he was always there to make sure we were on track. Even as the clock ticked toward closing, I felt at ease knowing my Realtor® was working hard for me.

Real estate transactions are complicated, and quite frankly, I don’t have the time or interest in dealing with every detail. My Realtor® took care of those details for me, so I could focus on finding the right home at the right price. If that’s not a good secret weapon to have for your home search, I don’t know what is.

To successfully purchase a home today, you will need a down payment of at least 3.5% of the purchase price. Gone are the days of no down payment alternatives, down payment assistance and seller-offered programs to come up with the money needed to buy a home. Instead, let’s look at the five ways you can come up with a down payment to seal the deal.

1. Gift Money
Gift money is simply that — a gift from family or documented close relationship. The giftor needs to provide a gift letter and paper trail of the monies they are gifting for the benefit of the buyer. In other words, they’ll have to provide a bank account showing they had the ability to gift the money. In short, gift monies cannot be funds sitting at home in a safe.

2. 401(k)/Retirement Loan
Typically, borrowed funds for a down payment are a no-go, but the exception is a 401(k) or equivalent retirement account (or current home equity line). If you can borrow money from your 401(k) for your down payment, this is accepted for obtaining a purchase mortgage loan.

Note: Depending on the terms of your loan, this could be counted as a liability and factored into your debt to income ratio.

3. Sale of a Good
Believe it or not, you can sell your recreational vehicle and use the net proceeds from the transaction as your down payment. Let’s say you decide to sell your motorcycle for $10,000. You’ll need to provide the full bill of sale — as well as the bank statement depositing those funds, matching the bill of sale — to your mortgage lender. Same goes for any other recreational vehicle, or other item that “makes sense.” The key is as long as it’s plausible and passes the litmus test and you can paper trail the monies from start to finish, you should have no problem using those monies for the house purchase.

4. Trust Funds, Settlement Awards, Etc.
If you come into a chunk of change via an inheritance, settlement, lottery winning, trust fund disbursement, family buyout, even a gambling victory, all of these monies can be used for the down payment as long as the sourcing of the monies is fully documented from A to Z with no stone left unturned. Matching of the amounts of monies used to the original deposits will be required when it comes time to secure the loan.

5. Line of Credit
Where a down payment lacks, enter strength in income. You can take out a line of credit or a personal loan, deposit the full funds into your bank account and after two months, the funds will be eligible for use in the transaction.

While a down payment is needed to purchase in the current real estate market, a prudent homebuyer should also have plans for having available funds for closing costs. The same out-of-the-box strategies listed above can also be used to procure funds for closing costs.

Closing costs run 3% of the purchase price, on average. So the total funds to close would be sum 3% of purchase price +3.5% down.

Do your homework. If you don’t have a down payment for a house, or your down payment is coming from more than one source, make sure you talk to a lender upfront so they can help you navigate the best way to properly support and document your monies used. Doing this on the front end will save you from wasting time creating and gathering unnecessary paperwork.

We are often asked if this is a good time to buy a home. Some clients are concerned that home prices may fall down the road, while others are convinced that home prices will go up.

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Even though interest rates have fluctuated, they are still near historic lows. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, a one point rise in interest rates could cost tens of thousands of dollars over the life of your mortgage!

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's relatively low interest rates while they are still available.

Please give a Morse Real Estate Realtor® a call if we can be of any assistance in determining how much home you can afford in today's market.

Mike Morse
Broker & Owner
(402) 677-6356