How to Reduce your Cash to Close!
Typically, the total acquisition cost of a property consists of: Your down payment towards the home, closing costs, points, prepaid items, and escrow costs. If you are trying to purchase a property with as low an acquisition cost as possible, here are some quick tips to help along the way!
1) Seller Contributions (seller credits)- Can be applied towards Closing Costs, Escrow, Points, and Prepaid Items. Each loan programs does have a maximum the Seller is allowed to contribute and it does fluctuate depending on the size of your down payment. But in general a Seller can credit the Buyer to help reduce the amount buyer’s need to bring to closing. In some cases an offer to purchase may be increased in conjunction with a seller credit, which would leave the Seller with the same NET result but help the Buyer improve their purchase situation. (ie. if the list price is $400,000- and you want to ask for a $5,000 seller credit, but have the seller receive the list price, you’d offer $405,000- with $5,000- back. The seller gets the list price)
2) Removing Escrow from the Mortgage Payment- This may not be available on all loan programs, but ask if it is possible to pay the property taxes and/or insurance expenses outside of your mortgage. The bank will not need to collect a standard 2-4 months of property taxes & home insurance as a buffer in an escrow account. This helps to reduce the total funds needed to purchase. This does mean you opt to be responsible for making sure all tax and insurance bills are paid on time.
3) Interest Rate/ Lender Credit- The Same way a Buyer can pay discount points to lower their interest rate, many mortgage offerings will provide the inverse option as well, where you can opt for a slightly higher interest rate and received a lender credit- which lowers your total closing cost. The total monthly payment would increase due to higher interest rate, but the total funds needed to close would come down. This should be discussed on a case by case basis if the option makes sense for the Buyer’s unique situation!
4) Gift towards a Down Payment- Not everyone is so fortunate, but did you know many owner-occupied homes can use 100% Gift Funds towards a purchase? Gifts can generally come from people with a demonstrated relationship, and even your employer! You never know until you ask!
To learn more about what it takes to buy real estate, give us a call today! 781-341-4000 or apply online HERE!