Trouble with down payment and closing costs

19 Replies

My fiancé and I are buying our first house that will be our primary residence for a couple years then we will rent it. We negotiated with the seller and got the price where we needed it and we have been super excited.... until our loan officer informed us of how much we'll need at closing... 

We agreed to pay $165,000 on the house and will be financing it over 30 years with a FHA loan. We will be putting down 3.5%, so with that and closing costs we're going to need around $12,000. We only have about $5,000 we're avle to put down all together. The seller said he will not pay any of the closing costs unless we figured it into the price of the house. Does he mean he'll pay the closing and we'll pay him that much more in the price of the house so we'll end up paying for it in our mortage?

Also is there any kind of creative financing we could do, to pay the down payment and closing costs, without hard or private money?

Honestly you guys may need to look into a cheaper home. You ideally don't want to spend all of your savings and have nothing left. I just closed on a personal residence and night one the home flooded. I would have been SOL if I didn't have some $$ left.

Yes the seller is saying you can pay more for the house (in the mortgage) and he will kick in more on closing costs. But upping the purchase price is going to up your down payment as well.... 

Ryan Dossey, Real Estate Agent in IN (#RB15001099)
800-347-9296

The owner will raise the price by the amount he credits you for closing costs .

Yes the seller puts the closing cost in the price of the house, if the houses appraises for the higher amount this is a workable idea. That extra $7k on the mortgage is only pennies more for you per month over 30 years. 

@Ryan D. The $5,000 we have for a down payment isn't everything we have in savings. It's just everything we have for the down payment. Thank you for that advice. 

You can also use gift money from a relative for down payment if that is possible

3.5% of $165k is $5775. Your lender should have told you that you would need more than that to close on the house.  Several months insurance and taxes up front, doc prep, loan origination fees, underwriters fees, title co. closing costs. I dont see how you could think that you could get away with only 5k out of pocket if the seller said they would not contribute to your costs.

Im sorry if it sounds harsh, but again 3.5% of 165k is over $5k.

If you found a different house where the owner was willing to take back a second lien position, that would work.  Maybe there is a program for first time homeowners in your area that will gift you some money or give a second that will get forgiven at a later time.

If you want to do a little creative type of financing, the seller has to be on board. This usually means that the seller is flexible because he/she really needs to get out of the house. 

Honestly, it sounds like your agent, if you have one, didn't help you out at all. I have bought 2 homes with FHA financing in the last 2.5 years. And going in the very first thing I discussed with my agent was how much I could afford to pay out of pocket. That is a very big distinction from how much you can afford for a down payment. Both of my houses we knew going in that if the seller wasn't paying closing costs that we would have to pull out.

You mortgage lender should have found out when prequalifying  you how much money you had to put down, and where it was coming from. They know how much cash you have in your accounts, and they know where I came from and when within the last 3 months usually. 

It sounds like you have the money, otherwise you wouldn't have made it this far. You just made a deal you don't want to pay now?

Are you under contract now? With FHA they won't allow you to pay more than the house appraises for.

@Jordan Johnson

I don't think raising the purchase price will work, because you're already in contract and I think it would set off lots of red flags, especially with an FHA loan. Also as mentioned above, the bank will not lend higher than the appraisal amount.

If it helps at all, remember not all of the money due at closing is a cost.  A lot of it is prepaid items like insurance or taxes, so you're not losing that, just pre-paying it.

- Tom

Originally posted by @Rick Pozos :

3.5% of $165k is $5775. Your lender should have told you that you would need more than that to close on the house.  Several months insurance and taxes up front, doc prep, loan origination fees, underwriters fees, title co. closing costs. I dont see how you could think that you could get away with only 5k out of pocket if the seller said they would not contribute to your costs.

Im sorry if it sounds harsh, but again 3.5% of 165k is over $5k.

If you found a different house where the owner was willing to take back a second lien position, that would work.  Maybe there is a program for first time homeowners in your area that will gift you some money or give a second that will get forgiven at a later time.

If you want to do a little creative type of financing, the seller has to be on board. This usually means that the seller is flexible because he/she really needs to get out of the house. 

 That is one of the first things we talked about was how much I wanted to spend on the house right away. I don't know why he didn't mention anything about all the closing costs then. 

Originally posted by @Jacob Edmond :

It sounds like you have the money, otherwise you wouldn't have made it this far. You just made a deal you don't want to pay now?

Are you under contract now? With FHA they won't allow you to pay more than the house appraises for.

How does it sound like I don't want to pay? I do have enough to pay the closing costs and down payment but then I won't have anything left and I'm not about to put myself in the position. 

Originally posted by @Tom S. :

@Jordan Johnson

I don't think raising the purchase price will work, because you're already in contract and I think it would set off lots of red flags, especially with an FHA loan. Also as mentioned above, the bank will not lend higher than the appraisal amount.

If it helps at all, remember not all of the money due at closing is a cost.  A lot of it is prepaid items like insurance or taxes, so you're not losing that, just pre-paying it.

- Tom

 Thanks Tom.  After the house has been inspected and appraised and everything, would we be able to go back into negotiations to include the closing costs as long as the house appraised for what the cost would be with the fees?

Originally posted by @Jordan Johnson :
Originally posted by @Jacob Edmond:

It sounds like you have the money, otherwise you wouldn't have made it this far. You just made a deal you don't want to pay now?

Are you under contract now? With FHA they won't allow you to pay more than the house appraises for.

How does it sound like I don't want to pay? I do have enough to pay the closing costs and down payment but then I won't have anything left and I'm not about to put myself in the position. 

 That's what I mean. The lender wouldn't have gone this far if you didn't have the funds somewhere that they could see. They don't care if it leaves you cash strapped. They just need to know it's in your accounts. Not wanting to spend it is wise. But if you are under contract now and want to move forward it might be your only option. 

Originally posted by @Steven Picker :

You can also use gift money from a relative for down payment if that is possible

 Thank you Steve. We have thought of that, but I rather explore any other options we have first before we ask my my fiancés parents or my own for money. 

Originally posted by @Jordan Johnson :
Originally posted by @Tom S.:

@Jordan Johnson

I don't think raising the purchase price will work, because you're already in contract and I think it would set off lots of red flags, especially with an FHA loan. Also as mentioned above, the bank will not lend higher than the appraisal amount.

If it helps at all, remember not all of the money due at closing is a cost.  A lot of it is prepaid items like insurance or taxes, so you're not losing that, just pre-paying it.

- Tom

 Thanks Tom.  After the house has been inspected and appraised and everything, would we be able to go back into negotiations to include the closing costs as long as the house appraised for what the cost would be with the fees

@jordan johnson - I think if you get pretty far into the closing process and then try to change the price, especially upwards, it's going to set off some red flags.  You have to check with your lender / RE agent / title company to get a definite answer.  BTW - most of the time the appraisal will come in right at the purchase price, in my experience at least.

Good luck!

Tom

Do either of you have money in a 401k, IRA, etc or any other investment instrument that you can pull out for the down payment?

Originally posted by @Frank Jiang :

Do either of you have money in a 401k, IRA, etc or any other investment instrument that you can pull out for the down payment?

I do but it doesn't have enough in it to pull from.

I think I figured it out with my loan officer. He played with the numbers to cover most of the closing costs but with a higher interest rate so everything will work out evenly.

Thank you everyone for the help. 

Yes the seller does mean factor in the cost into the final purchase price and thus the mortgage payment and down payment will likely increase. You can have a relative gift you the money but only if the money's origin can be verified.

My advice to you is to shop lenders and ask your current and other lenders about Texas down payment assistance programs. I am in the midst of saving another deal here in California with a very similar story. If you were here, we have several down payment assistance programs to help you. At the home price you are seeking you'd only need to come in with less than $900 to close. But homes are a bit more expensive out here however. 

Because I am not license there, I have provided a link to more info on down payment assistance in Texas by the state of Texas. On their site they will have reputable Texas lenders there for you. 

Texas State Down Payment Assistance.

Originally posted by @Jayden Hakunti :

Yes the seller does mean factor in the cost into the final purchase price and thus the mortgage payment and down payment will likely increase. You can have a relative gift you the money but only if the money's origin can be verified.

My advice to you is to shop lenders and ask your current and other lenders about Texas down payment assistance programs. I am in the midst of saving another deal here in California with a very similar story. If you were here, we have several down payment assistance programs to help you. At the home price you are seeking you'd only need to come in with less than $900 to close. But homes are a bit more expensive out here however. 

Because I am not license there, I have provided a link to more info on down payment assistance in Texas by the state of Texas. On their site they will have reputable Texas lenders there for you. 

Texas State Down Payment Assistance.

 Thank you for your help. I have looked in to the down payment assistance program with my lender and I make to much to qualify and my fiancé doesn't make enough to qualify for the loan on her own so unfortunately that's a no go. But the way my lender organized my loan, it'll be like we're getting the assistance through the bank but with a higher interest rate. So everything works out in the end. 

Agree with Ryan D. You don't want to be "house poor." Good luck.