Lots of renters think paying a monthly mortgage is way beyond their reach–until they do the math, look up one of the online mortgage calculators and realize, “Wait a minute! Mortgage payments on a modest home are actually less than my monthly rent!” Not only that, but the money homeowners pay on their mortgage actually builds wealth. The house appreciates in value over time, so that years from now, when you’re ready to move on, you’ll actually make money from the sale of your home. That’s a pretty great alternative to watching rent checks go down the drain each month.
The up-front costs of buying a home sometimes brings a potential homebuyer to a screeching halt. Traditionally, banks require twenty percent of the cost of the home as a down payment. That’s more cash than most first time homebuyers have on hand! To use a simple figure, it would be $20,000 on a house priced at $100,000. Plus, there are closing costs: house inspection and appraisal, title company and bank fees, and more, depending on the particulars of the loan.
There is good news, though.
There are several financial strategies, as well as grant and loan programs available to homebuyers in East Tennessee. Any good loan officer can check out a few options to help you find your best one. Here are a few ideas:
- You can use up to $10,000 from your IRA for a house down payment, without penalty. If you’re married, you can pull from both IRA accounts for $20,000 in down payment funds.
- You can borrow against your 401(k). This is less desirable, since you’ll have to pay taxes with this plan.
One of these options, plus getting frugal, selling some of your stuff online or in a yard sale, or even asking for gifts from family members could get you all the way to paying closing costs and the down payment on your house.
But, if you don’t have access to an IRA or a 401(k) and selling your stuff gets you a net gain of about $27, then you’ll be thinking about more substantial assistance. Luckily, there are many assistance programs available. Keep in mind that your financial situation and the house you want to buy create a unique set of circumstances, so your loan officer will have to assess many details of your case before you decide which loan is really the best for you.
First Time Homebuyers
Backed by the Federal Housing Administration, sometimes first time homebuyers can get their home with a down payment as small as 3.5%.
Specifically for veterans, this loan requires no down payment, and even assistance in closing costs.
This loan is backed by the USDA. You’ll have to check the availability of this loan for the area you want to live. You can’t get this one for the loft downtown, but you could get it for a house in a neighborhood just off the main thoroughfare. You don’t have to live far out in the country to get this loan, and it requires zero down payment.
Check into local and state grants available for the specific area you want to move to. Sometimes a city or county is looking to help a blighted area develop, and is willing to encourage homeowners by paying part of the down payment.