There seems to be confusion on either end of the spectrum of the role of assets in a mortgage loan transaction. Many people I talk to think they need no money to buy a home because they are receiving 100% financing through USDA or VA-two programs that do not require a down payment. And then there are the folks that still believe that one has to have 20% to put down in order to buy a home. I have been working in the housing industry since 1991, and even in that long ago era, one didn't need 20% down in order to obtain mortgage financing. In 1983 I purchased my first home and I put 5% down-so the 20% requirement is long gone, but apparently not forgotten.
The fact is that you do have to have some money in order to purchase a home. Minimally, if you are using a 100% financing program, you would need $800-$1000 to cover inspections, earnest money, and the appraisal once your loan was submitted. However, while it is not my decision to make I highly encourage savings. For one thing the underwriting goes much more easily if a borrower shows that they have the ability to save some money. This money can be in retirement funds, CD's, a bank account, stocks, etc. Even a couple thousand dollars in the bank shows a lender that the borrower is able to manage their finances.
I have closed many loans for folks that only have a little money in their checking account. That's okay-government loans don't require the borrower to maintain reserve funds. However, if the simple aspect of purchasing the home requires all the money the buyer has, what happens three or four months down the road if the furnace quits running, the roof leaks, or there is an electrical problem? Yes, there are whole house inspections and the inspectors do try to find anything that might go wrong in the near future so that it can be repaired prior to closing the transaction. However, whole house inspections while useful, don't always find everything. The whole house inspector may not be able to determine if the sewer is going to back up if it never has before. There are always unforeseen circumstances when it comes to owning a home. I put $1000 into treating two trees this summer because of the emerald ash borer threat. Stuff comes up. Not to mention the normal issues of life-medical emergencies, car issues, or school participation fees that can be a bit pricey.
My advice to soon to be home owner hopefuls is to save a little money. If you have a tax return check coming-don't let the nearest car lot call your name and sweet talk you into using the money for a down payment on a car. Tuck it away-it may come in handy once you are a home owner. If you don't have a retirement plan at work-create one. If your company doesn't offer profit sharing or a 401K do it yourself. Ask for a referral for a good financial planner and put a little away each month.
I look at an awful lot of bank statements that are a testament to the fact that Americans eat out-a lot. I often see that people spend $300-$500 a month on eating out. That's okay if you like to eat out-but put one meal a month away for a rainy day. And if you find that eating at home isn't so bad-put more than one meal a month away. It adds up in the long run.
We all will not be blessed with winning the lottery, inheriting a large amount of money, or stumbling over a pot of gold at the end of the rainbow, but we can all do what we can do. You will make your loan application that much stronger and create a little less stress for yourself in the process.
No comments:
Post a Comment