I will start off by saying how REAL I know this situation is. I currently have two buyers (on closing in September the other more likely late October) that are currently having trouble with, have asked earnestly (and frantically) about, or realized the real need for help with their closing costs.
Actually I should say that I have three buyers dealing with this “situation” but I failed to initially include them because they tackled it early in the process and are “sitting pretty” right now.
What do you do when
- You worked hard to get that credit score to that magical 630 that everyone has been talking about
- You receive the “Pre-approval”
- Start Looking
- then find a house
- Put in and have your offer ACCEPTED
YOU GET THE DOCUMENTS THAT SHOW WHAT YOU WILL NEED TO PAY TO ACTUALLY CLOSE ESCROW ON IT (Buy or “Close on” the house).
Well, there are several things that I can suggest that might be very helpful. Some you should do BEFORE putting in the OFFER and some you can possible tackle afterwards. I will put them in the categories of BEFORE and AFTER so those folks that are at the AFTER stage can bypass the first part without kicking themselves too bad about what they did or did not do.
***THIS ALL A LEARNING PROCESS AND IT IS YOUR AGENT’S JOB TO HELP GUIDE YOU THROUGH IT SUCCESSFULLY***
Before your offer:
These are options and resources to look into before you put in a offer, some before you get a pre-approval.
Closing Costs Grants:
Programs vary in amounts, restrictions and areas but the goal is the same, to provide you with money when you close. Here are a few:
NKCDC Neighborhood LIFT Program (Click link for more info): This is Philadelphia based in “New Kensington” but serving Philadelphia County it can provide matching funds of up to $7,500.
First Front Door (Click link for more info); Although this one is CLOSED FOR 2018, watch for the 2019 opening. It matches $3 for your $1 up to $5,000.
There are also other programs out there that offer grants and assistance like:
- Mt. Airy USA has grants as well as seminars and home buyer counseling
- OHCD: Philadelphia Office of Housing and Community Development with many other resources
- PNHS: Philadelphia Neighborhood Housing Services: provides counseling and grants as well
- NACA: Neighborhood Assistance Corporation of America NACA is an AMAZING NON-PROFIT organization that offers a range of products. Too many to name here in this post. Hive them a call.
Before you put the offer in you really should encourage your agent (ME) to request Seller’s Assist in your offer. Seller’s Assist is where you request the seller to assist you in paying some of the closing costs. They DO NOT pay you out of hand at closing (no “cash” is exchanged) they CREDIT you a certain amount that comes from the proceeds they would get from closing on their house.
Ex: Home $250,000
Offer without Seller’s Assist $240,000 Seller Gets $240,000
Offer with Seller’s Assist: $250,000 with $10,000 Seller’s Assist Seller Gets: $240,000
The only difference is that you mortgage is for $250,000 not $240,000 . So in order for them (the Seller) to give you $10,000 to help with closing costs and for them to NOT lose any money, t would cost you about $50 a month.
This is usually negotiated and AGREED UPON as part of the Agreement of Sale Contract but is a VERY handy way to essentially borrow money to close FROM YOUR BANK.
After the Offer
After you have had your offer accepted and now find yourself over your head with the amount you need to get into your “forever home”.
- 2nd Mortgage: You can ask your bank to finance some of the closing costs. By this I mean some mortgage companies can and WILL give you a “Second mortgage” meaning they will FINANCE your closing costs in a separate mortgage. This is very similar to a “seller’s assist” but just coming DIRECTLY from the mortgage company.
- “Gifting”: Several people are able to “Gift” you money to help pay your closing costs. There are rules to this gifting mainly because it can be used to launder money, These rules are typically not too intrusive. It usually involves demonstrating where the money came from and how you gave the gift. Gifts can come from many places like family, non-profit agencies, churches, unions, etc. If you are getting married, DON’T ask for gifts from Nordstrom’s, ask for funding gifts for your new home.
- Retirement loans: You CAN borrow from your retirement accounts in most occasions with little or NO PENALTY if it is used for the purchase of a home.
- Selling your stuff: If you sell a car and have a receipt to prove and verify it, this TOO can be used to gain funds for closing. That 2nd car you had, the Harley that you expect to get little use once the child comes, whatever. Make sure if it is a “Craigslist” type sale. Valid receipts that can be VERIFIED.
- Collect on debt: I have a very good friend that will use this to finance part of their closing costs. Again, this one is a bit tricky ESPECIALLY if close to the closing date so make sure to have a REPAYMENT CONTRACT that can be verified (possibly notarized) so that when the UNDERTAKER… I mean underwriter sees the money, you can “source” it.
- Ask your Mortgage lender to adjust the mortgage rate in the beginning increasing later to be able to have more for closing costs. This one is tricky because it involves negotiating with the lender and other factors. This one could take a whole blog post, but IS an option.
I hope this post is helpful and I look forward to you of course giving me a call if you have any other questions.
Dirk “The Realtor” Parker
Real Estate Agent, ePro, Specialist
215-908-9390 ” I am never to busy to answer your questions, or for your referrals”