not enough money for closing costs AND down payment...

[Brandon Ribeiro]

Hey BP, i'm looking to buy my first property and plan on house hacking it. The property is a 3 bed 2 bath in Manayunk going for 229k. It is fully rehabbed and in amazing shape- I know I can get 750 per room bringing the rental income to 1,500 covering the entire mortgage. 

The only issue is that i dont have enough money for the closing costs and minimum 3.5% down... does anyone have any tips or advice for this situation?

[John Knisely]

@Brandon Ribeiro good on you for looking at this option in the first place.

Personally, if finances are tight that you don't have the cash to put 3.5% down plus closing costs, my opinion is you are not yet ready to purchase. This may be an unpopular opinion on a real estate forum (especially given that two other agents posted before me), but you always want to have cash reserves for life's surprises. Negotiate from a position of financial strength!

Now, different story if you are saying your dedicated real estate purchase funds can't swing 3.5%+closing costs without dipping into your emergency fund. That's where Seller's assist can help as Bill and Jim have mentioned. Essentially the seller agrees that $X will come out of their check at closing and go to cover your closing costs at closing (debit Seller, credit buyer). As far as inflating the price and asking for an equal amount of seller's assist in return, keep in mind the house has to appraise for the inflated purchase price. Anecdotally I have had lenders tell me outright that FHA lending guidelines frown upon this practice more than a conventional loan.

A lot of lenders do have 3-5% down conventional loan programs too, so definitely weigh the options and the costs...as well as the potential future tax implications of the decision.

Ask your agent and your lender to run a closing cost estimate for the different scenarios before you offer. If you need any help feel free to shoot me a message.