Down Payment Options

One of the key components of getting ready to buy a home is saving money for your down payment. There’s a lot of incorrect or misunderstood information floating around out there about what amount of money you actually need to provide for a down payment.

For starters, you don’t need 20% down! It’s been years since that was a requirement. In reality, for the most commonly used loan programs, Conventional and FHA, you only need as little as 3% or 3.5% down respectively. For a VA loan program dedicated to current and former military members, no down payment is required at all. There are also down payment assistance programs out there that may be a good option if you need a little help. A lender will work with you personally to help determine which loan program and what amount of down payment makes the most sense for your situation.

Your down payment can come from a variety of places, so feel free to get creative. The most common sources are personal checking/savings accounts, gift funds from family members, pulling the money from personal investment or retirement accounts, or through equity from the sale of a previous home. Realistically, the down payment usually comes from a combination of these sources.

Cash (like cash in a shoe box or a personal safe at home), cannot be used for down payment at the closing table. Underwriters are required by the loan investors to “source” your down payment, or be able to show a paper trail of where that money came from. If you have cash you’re planning to use, you’ll want to put it into a bank account for at least 60 days to meet requirements. Also, be prepared to verify where any large deposits into your bank accounts came from that cannot be clearly understood from your bank statement transaction history.

Getting your down payment in place is a big step in making your home purchase a reality. Hopefully this helps you to realize that you don’t actually have to save up an exorbitant amount, but rather that with the low minimum percentages required and the various options of sources for down payment, it may not be as overwhelming as it may have seemed!

Information courtesy of my go-to local lenders, The Strive Mortgage Team

Earnest Money

Earnest money is a required part of most real estate transactions...but what exactly is it?

Earnest money essentially a security deposit that demonstrates to the seller that the buyer is serious about completing the home sale.

If the buyer defaults in the contract, the seller will get to keep the earnest money. However there are several steps within the transaction (Inspection, Appraisal, Loan Deadline, etc) where the buyer can legally terminate the contract and get all of their earnest money back.

It is typically 1-2% of the sale price of the home, and is due by the buyer within a few days of going under contract. The buyer will give the earnest money to their agent, and typically it is held by a title company until closing.

The good news is that as long as everything goes smoothly, the earnest money is applied to the buyer’s closing costs and down payment at closing, so it is money that the buyer gets to keep and use!