Homebuyer Assistance Alternatives
There’s a good chance that you’re here as the result of a google search about homebuyer assistance alternatives.
You may make too much money, or the assistance doesn’t cover all of your costs, or your purchase price is too high?
Whatever the reason, maybe traditional homebuyer assistance programs are not going to work for you at this time.
The mother of all assistance programs is the homebuyer grant.
A homebuyer grant implies there is interest rate, no payments, and no lien associated with the assistance money.
Many of these assistance alternative strategies will provide “grant” money to help pay closing costs or even down payment.
When we talk about homebuyer assistance alternatives, many times it simply takes an experienced loan officer to discuss all of your available options so that you can make an educated decision.
It is not unheard of for a loan officer to only tell you about programs, or options that are limited to what their employer offers, or what they have learned over their years of experience in the industry.
My goal here is to give you a few alternative strategies to consider that may help you save time, money, and potentially the home of your dreams.
What is a Homebuyer Assistance Alternative?
Most traditional homebuyer assistance programs comes at a high cost in terms of fees, and interest rates. In addition to high upfront costs, some assistance programs could include an equity share clause that entitles the City, or County, a share of your future equity.
The moral of the story is, buyer assistance is not free money. There are actual costs, and there could be future costs in terms of accessibility to your equity. A silent second mortgage needs to be paid if you sell or refinance.
Here are some of the assistance alternatives we are going to cover here:
- Closing cost credit strategies
- Downpayment assistance alternative
- Mortgage credit certificate
- Co-signers and gift givers
- Piggyback loans (1st and 2nd mortgage)
- Expanding your loan options
Closing Cost Credit Strategies
With a traditional loan, you can pay pre-pay interest to permanently reduce your interest rate. This is called buying down your rate. The cost to buy down your interest rate is called discount points.
The lowest rate does not come at the lowest cost
The opposite of buying down the interest rate is to increase the interest rate, which will generate a closing cost credit that you can use to pay for most closing costs. Closing cost credits cannot be used toward your minimum down payment requirement.
In most cases, you can increase the interest rate enough to pay 100% of your closing costs, and the interest rate will still be lower than if you used a City, County, or State homebuyer assistance program.
Any assets that you do have, you commit toward down payment. Your closing costs can be covered, and you are not locked into an buyer assistance limitations or restrictions.
Downpayment assistance alternative
As a mortgage broker, we have access to unique, sometimes cutting edge loan programs offered by creative wholesale lenders.
One example of this is a 1% down payment program, if you have a minimum 700 credit score. This program is based on Freddie Mac’s Home Possible program, and does have certain income limits.
The income limits may be waived if you are buying in an eligible area as determined by this Home Possible income and property eligibility lookup tool.
The lender will contribute 2% towards your down payment, so that your actual loan to value is 97% LTV (3% down payment).
Mortgage Credit Certificate
A mortgage credit certificate, also known as MCC, is a unique qualifying tool that allows you to convert a percentage of your tax deductible mortgage interest as a dollar for dollar tax credit.
In most cases, you must be a first time homebuyer to qualify for a mortgage credit certificate. The definition of a first time homebuyer is that you have not owned a home in the past 36 months (3 years).
Mortgage credit certificates are powerful qualifying tools as well. Depending on whether you are using a conventional, or FHA insured mortgage, you are allowed to use your projected tax credit to lower your debt to income ratios.
Additional Reading: How Mortgage Credit Certificates Work
Co-Signers and Gift Givers
Co-signers allow you to include a non-occupying person’s income and assets in your qualifying debt to income ratios.
A co-signer does not have to be related to you, and they need to understand that your mortgage payment will show up on their credit. This may affect the co-signer’s ability to meet their own debt to income ratio requirements in the future.
Gift Givers must be from a close relative by either blood or marriage. The generous donor can expect to be asked to show where the money came from, and for how long they have had the money in that place.
Gift funds can be used for down payment or closing costs in most cases. Different loan programs may have different allowances for how gift funds are used. Be sure to check with your loan officer for details and availability.
Piggyback Loans (1st and 2nd mortgage)
As the 2008 mortgage crash, we’ve been slowly crawling back to as normal a lending environment as investors are comfortable with allowing.
It’s taken years for piggyback mortgage to become reasonable enough to bring back into the market.
A piggyback loan is a first mortgage that normally goes to 80% of the value of the home, and a second mortgage, amortized or interest only, to reach as high as 89.99% of the appraised value of the property.
Piggyback loans are mostly used to avoid mortgage insurance, or avoid Jumbo underwriting guidelines, and down payment requirements.
These loans typically require higher FICO scores, but will allow lower credit scores at higher interest rates and lower combined loan to value.
The above homebuyer assistance alternatives are only of a few options that have come from year of experience, troubleshooting, and fighting, to get underwriting approvals when everyone else said it was impossible.
We receive tens of thousands of visitors a month on this website, and I personally answer over a hundred questions a month, sometimes many more than that.
Most people find this website because they were either turned down, or are having problems getting approved for a home loan.
The days of not trusting loan officers because they are crooked, are over. New regulations and rules in the mortgage industry over the past nine years have succeeded in eliminating the opportunity for crooks to operate in the industry.
The more common cause of borrower frustration seems to be a new breed of loan officer belonging to big box lenders that spend all of their money on television or radio commercials, and not on experienced mortgage loan officers.
The result of this new “automated mortgage” marketing scheme is that by its very nature implies that the process is “automated” – meaning, no people involved.
The promotion of this as a “better way” to do a home loan, by removing the professional loan officer, is an absurd though that completely dismisses the many years of experience, and knowledge, that a professional mortgage planning specialist can bring to the table.
In My Professional Opinion
I know I’m biased. I am one of those veteran mortgage professionals that see the need for professionalism and experience to solve many underwriting changes and challenges I see on a daily basis.
With my many years of experience, especially on the topics most commonly found on this site, I am able to immediately see assistance alternatives that lesser experienced loan officers miss.
An experienced loan officer has a broader knowledge of loan programs, and underwriting exceptions that are possible when the conditions permit.
The single most common reason why people find this site is because their loan officer didn’t know the underwriting guidelines for the program you applied for, or by not knowing that you could qualify using a different program.
In all cases, when you are working with an inexperienced loan officer, you are only getting one or two of the many more options that may be better for you.
Inexperienced loan officer like to stick with what they know, not what is best for you.
Need a Second Opinion?
You can catch me most days taking questions through live chat on the lower right corner of this article, or answering questions from other articles on this site.
Please feel free to ask any questions below, on chat, or email. This is an opportunity for you to anonymously ask an experienced professional that has absolutely no financial interest in how they answer your questions.