Home Buyer Down Payment Grant

Many of us are coming to an age to where we are buying or looking to buy our first home. However, most of us don’t know where to start, what’s needed, and the benefits of home ownership; we simply think it’s a lot more inconvenient to reach then it actually is. After reading this, you will be able to plan simple goals, and will think, “why didn’t I do this sooner?” Preparing for home ownership sets you up to receive the best possible advantages, and keeps the cost as low as possible. The three major components that are reviewed are: your credit, your debts, and your income. Obviously, credit is reviewed thoroughly, so the higher the FICO score, the better, but anything over 620 is workable. Some programs even have the ability to go as low as 580, but you will pay for it. Raising that credit score prior to applying for the loan will save you thousands, and will actually pay you in regards to 1st time home buyers programs. Having a FICO score over 640 can get you free down payment and closing cost assistance in grant or gift money in upwards of 4% of the loan price, which can be as much as $16,680 free dollars! The next item reviewed are your debts, so paying off or down your credit cards, auto loans, school loans, etc. will raise your max loan amount and view you as less risky borrower. The other major component is income; lenders will ask to review 2 to 3 years of W-2s, which they will match with your debts and come up with a debt to income ratio. Those ratios are combined with your monthly loan to come up with a total debt to income ratio. The standard is around 35%, but again, that all depends on the loan program and your down payment amount. Now on to what’s needed to buy. With interest rates at record lows, and with numerous first-time home buyer programs available, it’s not as much as you would think. When buying a home, you have costs that are broken up into 2 sections: before escrow, and at-the-close of escrow. Before escrow, you have items to pay for like home inspections and appraisals; these items usually end up running roughly around $800 to $1000. At the end-of-escrow, the costs you incur are closing cost and down payment. I’ll start with closing cost. These are a slew of charges, from loan fees and mortgage insurance, to property taxes and more. All these figures are based off the cost of the home and the terms of the loan, but they usually average around 3% of the purchase price for new home buyers. With today’s loans, it’s not unheard for lenders to assist with these, and pay upwards of $4,000 of these fees for you. Lenders have the ability to bundle the rest of these charges into your loan amount, or possibly even have the seller assist you with them. So really closing costs are something to be aware of, but not to worry too much about when saving to purchase a home. On to the down payment, first-time home buyers, depending on credit, will require a down payment of 3.5% of the purchase price. This is where the first-time home buyer programs come in to save the day! With that FICO score over 640, you can get as much as 4% of the loan amount in free money for your down payment. Any leftover funds can be applied to closing cost! Just in case you’re not following, that’s HUGE! Basically, if you come to me with a 640 or higher FICO score, and income of 85k or under and $1000 in the bank, I can get you into a home! Not too bad considering a home is usually the biggest invest in someone’s life, and for a lot of us the only investment. Let’s get to the best part the real benefits. We’ve all heard the standard benefits: “why pay some else’s rent pay your own mortgage,” “it establishes equity,” “there is a great chance your property will appreciate in value,” etc. These reasons alone should be more than enough to want to buy. But a rather large incentive that gets overlooked are tax breaks. Most are aware of these, but not sure how they can use them to their advantage. The most advantageous way to look at them is to determine what your individual tax break would be for you and the home you’re looking at, and breaking down the figures to a monthly amount. This can be a confusing process, so I’m going to use simple numbers to explain. Say you have a home that cost $400,000, with 3.5% down. After all is said and done, you’re looking at a monthly PITI Payment around $2,500. Now add in the benefit of the tax break, which is roughly estimated to be around $5,300 for the year, or $450 a month. Adjusting your dependents on your W-2 to compensate for this will allow you to take home more money monthly, making home ownership less of strain, and thus more enjoyable. I hope this information helps some of you out. Note: all figures are simple estimates. If you’d like to talk and learn more, or would like to have spread sheets customized just for you, message or call me anytime.

Greg Shamalta

With Monica Barkley & Associates

RE/MAX of Santa Clarita

(661) 857-4707