It is all over the airwaves, so you may have heard those commercials on television or the radio advertising grants and “free money” for your purchase. The idea of buying a home with no money down sounds appealing; however, it is not always financially in your best interest.
Most grants are not simply free money, there are typically fees incurred to receive these monies. Also, not all grants are true “gifts”. Many grants have to be repaid when you sell or refinance your home. It’s actually an interest free loan, affecting the equity in your home, which can later make it more difficult to sell, refinance, or get a home improvement loan.
There are also loan options that allow you to finance the entire purchase price of your home with no money down. In many cases, you can even finance some of your closing costs. Again this sounds appealing but there are things to consider. Typically, your rates and fees are higher for these programs, and in addition to that, you start out by owing more on your house than it may be worth. This means that it will take you longer to pay down enough principal on your loan to re-sell your house and break even, as you will need enough equity to cover the costs of selling, which includes realtor commissions. Equity takes a long time to build, so these programs can also make it more difficult to borrow funds for home improvements.
Keeping these factors in mind, saving up a small down payment puts you in a better loan product and financial position. However, zero–down loans are an option and can be utilized if necessary. The Real Estate Staff at Dakotaland Federal Credit Union has experience with all of these mortgage products. We are happy to help you review your options and find which products best suit your financial needs.
