Finance Your Closing (Without Spending a Dime)

They said it was the time to buy. Record low interest rates. The tax credit. A buyer's market.

My only problem was that I had no money saved to use as a down payment at closing. Most lenders expect that the buyer will pay for 20% of their new home's total cost up front. Even with an FHA loan you needed money to close. (For first-time home buyers FHA loans are often recommended instead of a traditional mortgage.)

I had been renting since graduating college in 2007 and every month I felt like I was tossing half my income out with the trash. Saving money was a struggle and I felt too young, too single and too poor to seriously consider buying a house. Then a friend of mine--single, young and in her first post-college job--did just that. She bought a house. Suddenly the goal seemed attainable.

I began to research the home buying process and found the Tulsa Housing Authority, a local agency that assists first-time home buyers with closing costs. As long as you meet their criteria they can give you a grant (forgivable after 5 years in your new house) to help with closing costs. That's how I was able to buy a house two years out of college and with no money to put down at closing. 

The Tulsa Housing Authority was a great resource for me, not only because of the money they gave me, but because in order to get that money I had to attend a seminar for first timers on the process of purchasing a home and then I had to work with a financial adviser to assess what price range I could afford when looking at houses*. They were able to guide me through the--often confusing--process of buying a home. 

In some ways using this program made the process even more confusing. My realtor, mortgage broker and title company had never worked with the Housing Authority and didn't know their requirements. Some of those requirements meant extra work. For example, the home I chose was built in the 50's and despite being freshly repainted I was required to get a lead-base paint inspection. Then the inspection didn't get listed on the closing documents so the Housing Authority wouldn't cover the cost. The Housing Authority only pays exactly what they promised, or less if closing costs are less. Also, they work with a lot of home buyers, so sometimes it was hard to reach my representative.

As part of my agreement with the seller he agreed to pay $1,000 of my closing costs. If you don't have money set aside for closing, consider asking the seller for a similar agreement. Most sellers are in a situation where they really need to sell their house quickly and are willing to make some concessions to get a buyer on board. Of course, some buyers borrow money for closing from family or some other option, but you have to document the loan at closing.

Your credit is also important. (I'll touch more on options for people with bad--or worse NO--credit in a later post.) Be sure to check your credit history before you begin searching for a house.

I hope this post helped those of you still considering homeownership find a few alternate options for financing! 

*When you're considering buying a home think about what you can afford. The Housing Authority told me that your mortgage should never be more than 30% of your total income. But even if that five bedroom, four bathroom mansion with the gourmet kitchen and pool falls within that 30% you should still consider whether you really NEED that much house. 

For me having three bedrooms was important. I wanted a room to use as an office and a room to rent out if I needed to. Even with three bedrooms though I paid the lower end of "what I could afford." Consider the cost of maintaining any house you look at before making an offer. If almost a third of your income is going toward your mortgage will you have enough left over for unexpected repairs, health care, groceries and car payments? Do you have the time to clean, meet with service people or keep your yard in good condition?