Purchasing a house with little out of pocket is done all the time, but it takes the expertise of your real estate partners and the cooperation of both buyer and seller to pull it off. Everyone has to be on the same page BEFORE the contract has been negotiated.
Start the process of purchasing a home for as little out of pocket by communicating with your lender. It is very important for you to provide up-front and forthcoming information to your mortgage counselor so that she understands your goals. If you want to purchase a home for little to nothing out of pocket, let your lender know immediately.
With that information, your lender should show you what financing options are available to achieve that end result - minimum out of pocket. This should be factored into your pre-qualification or pre-approval process.
There is more than one way to purchase a home with minimum out of pocket, and typically a buyer uses a combination of methods to reach this goal. The following methods are:
1) Financing or “rolling” into the sales price items such as: down payment, closing costs and prepaids (taxes and insurance).
2) Down payment assistance programs / bond programs.
3) Gift programs.
4) Interested party contributions (from seller, realtor, lender).
Once you are pre-approved, have your lender communicate the financial needs of the transaction to your real estate agent (also called buyer’s agent). It is very important for you AND your lender to communicate any critical financing information to the agent BEFORE making an offer on a house.
Locate the house you want to buy. Work closely with your buyer’s agent to locate a home. Once you are ready to make an offer, you AND your buyer’s agent should contact your lender to let her know about the property on which you want to make an offer.
Ask your agent to pull up “comps” (short for “comparable” homes) in the same neighborhood or competing neighborhood to get an average square footage price for similar homes that have sold within the last 12 months. Have your agent communicate with the lender about the average sales in the marketplace. Your agent should determine if there are strong sales in the area to support a higher appraised value than the asking price of the house you are interested in purchasing.
With this information, your lender will want to rerun the financial numbers for your situation to:
1) Determine the dollar amount that is needed to factor into the financing of the home for down payment, closing costs and prepaids.
2) Confirm that you still qualify for the loan based on any of the following factors:
a. Costs financed into the transaction
b. Current market rates
c. Estimates for taxes, insurance and any homeowner’s dues or assessments associated with the property you are interested in purchasing.
After your agent and lender have worked together to review the numbers to determine “feasibility” of the house appraising for any amounts above/beyond the initial asking price, you are ready to write up an offer. Your agent will walk you through this process.
Your lender will order an appraisal (official market valuation) on the home you are contracted to buy. The house must appraise for the full purchase price – including any amounts financed or “rolled” into the home – in order for the lender to provide the maximum financing. The appraised value as determined by a licensed appraiser is the last and final “key” to ensuring that you can purchase a home.
By having an up-front understanding of the method that lenders and realtors use to help buyers get into homes for minimum out of pocket, you can make smart choices about:
1) Home selection
2) Home financing options
For more information on your home loan, please contact a LegacyCare loan consultant at 817-860-3232 or you may email us at Joy.Bates@myccmortgage.com.