Creative Ways to Pay for Down Payment and Closing Costs
Creative Ways to Pay for Down Payment and Closing Costs
Josh Lewis, Scott Schang, and Benson Pang discuss 10 Creative Ways to Pay for Down Payment and Closing Costs.
Here’s a quick summary:
- Personal Savings
- Business Accounts
- Gift Funds
- 401k or Retirement Plan
- Employer Assistance Program
- Sale of Personal Property, Stocks, Metals, Crypto
- Lawsuit, Insurance Claim, or Tax Refund
- Seller Concessions
- Lender Credit
- Cash on Hand
Josh Lewis: Welcome back to find my way home live. I’m your host, Josh Lewis. We have a couple of very special guests for the second time in the last three or four weeks. We’ve been joined, uh, by the founder and creator of find my way home. Scott shag, my business partner in both buy wise mortgage and find my way home.
Josh Lewis: And we have, and we have the brains of the operation at least on Scott’s side. and then, uh, and that’s cozy for those of you watching. Uh, and then we’re also joined by, uh, one of our mortgage experts in the find my way home expert network, Benson paying, um, Benson you are at nest made. Why don’t you tell us a little bit about yourself, both, um, history, how you got in the business and how you found your way here to find my way home.
Benson Pang: Yeah. Well, thank you so much for the intro. I am Benton paying broker owner of nest made mortgage. So, um, been in the business for 10 years before I’d become a mortgage broker. I was actually a civil engineer. . Um, and right before I actually switched careers, I got my PE license and got the whole certificate.
Benson Pang: Everyone’s like, what are you doing? Why are you switching? And, and here I am 10 years later, you know, being in a, in one of the most elite group, find my way home.com you giving my, uh, my expert knowledge sharing my expert knowledge. Um, actually I met Scott, uh, through. Through a group of elite loan officers, just what a, what a pleasure to be with, um, in that group.
Benson Pang: And after knowing Scott, uh, the way a situation understand like, Hey, you can actually get a loan. Maybe not now let’s get you prepared. Right. And I, I feel like I share that same philosophy and that’s why. Uh, it drawn me to find my way home.com. It’s something that I want to share my knowledge with. If it’s not, now we can get you prepared.
Josh Lewis: perfect. So tonight we’re gonna talk about a topic that, you know, Scott, you said something earlier, like, Hey, this is basic. This is loan officer 1 0 1. And to a degree, it is. Um, but what I find is all of the time talking to clients, they’d. Don’t know some of the simple ones we’re gonna get into some creative ways, uh, of funding your down payment and covering your closing costs.
Josh Lewis: But some of these are basic, but they’re not fully and well understood, um, by most buyers and, and let’s be realistic about it. Buyers. Don’t buy a home twice a year. They don’t buy a home twice every five years. For most people it’s about every six or seven years, they go through the process. So it’s, every time is like the first time.
Josh Lewis: So with that in mind, if you’re looking to buy, and you’re wondering what all of your options are for funding, both your down payment closing costs and prepaids, um, we’re gonna kick it off and go through that. So, uh, why don’t we start with the first and most obvious one. Yeah,
Scott Schang: well, before we get started, what I also wanted to say is, is, you know, this is also the single biggest hurdle for renters wondering whether or not they can buy a home because especially right now in most of the country, you could buy.
Scott Schang: For paying the same amount for a mortgage that you can for your rent, but you have the security when you’re an owner of fixing that payment over a 30 year period where your landlord could raise your rent next year. And, and then, and then it’s more expensive than if you would’ve bought a home this year.
Scott Schang: And you know, it, it right now, as we’re recording this interest rates have gone up a little bit, but they’re still historically really, really low. And they’re still. You can still buy a home and make that payment, but that hurdle is that down payment, right? It’s that? How do I pay for the down payment and the closing cost?
Scott Schang: Because that’s the challenge with that. A lot of renters have is I don’t have a huge amount of savings and I don’t wanna put it all in and how am I gonna do it? And so that’s what we’re talking about today is kind of some creative ways that, you know, you don’t have to have a pile of cash laying around.
Scott Schang: Um, we’ve got 10. Some obvious and some pretty creative ways to come up with that money, um, to get yourself into that home. So.
Josh Lewis: Take it away. And you know, what we should be able to follow up with next week is how much it takes to get in because that’s another big misconception, not only where do I get the money from, but how much money do I have to have at a client today?
Josh Lewis: They have 20% down and he says his, his final words were well, and that’s good. Cuz you have to have the 20% down to go with a conventional loan. I said, no, you actually don’t need 20% down. So it’s probably another really good topic for us to cover the different loan program. What minimum down is what closing costs are, what prepaids look like.
Josh Lewis: So, you know, what does the dollar amount look like and how much you need to get into home? You know, Scott kind of going back old school, the start and the Genesis of finding my way home, we used to in California have a lot of down payment assistance programs. So there’s a lot of content on the website about these now defunct down payment assistance programs.
Josh Lewis: So we have this conversation a lot, cuz people reach out asking. Such and such program that no longer exists. So basically that’s what we’re gonna go through for you guys tonight, um, is just a quick run through all the ways that you can fund your, your down payment. So,
Scott Schang: and if you are watching this live, you can ask your questions either on, uh, Facebook or YouTube and we’ll get those.
Scott Schang: And, uh, we’ll answer your questions
Josh Lewis: for. so starting, um, the easiest and most obvious one, your personal savings, what, whatever you have in your checking and savings. Um, we’re gonna go, if you have mattress money, cash on hand, we’ll get to that in a minute, but the first few are, are pretty easy here. Um, funds that you have and, and Benson, what, what percentage of your clients would you say, just have their money sitting in personal savings versus having to go to some of the other options, um, that we’re gonna roll through.
Josh Lewis: Yeah. Oh, you know, it’s very
Benson Pang: well earlier, you mentioned about like the, the percentage of down payment, right. Um, you can actually get, go as low as 3% for down payment in California in some counties. Right. Um, and, and they don’t know that they actually already have that down payment in their bank. So. When we’re talking to them and we’re talking about down payment amount and we, we went, we go over their bank statements and, and there you go.
Benson Pang: It’s you already actually have that money in the bank. I would say a good 60, 70% of the people that I talk to have already saved up that three to 5% down payment. A
Josh Lewis: and that’s, it’s, it’s the most common, it’s pretty rare that someone comes in with no money of their own. They at least have some personal savings.
Josh Lewis: So what I would say, number two, here is also very common gift funds. Um, Benson, why don’t you tell us a little bit a about gift funds, which programs allow it? Do you have to have any of your own funds and what that looks like? The, the extra hoops you might have to jump through? If you’re trying to use gift.
Benson Pang: Yeah. So the most common loans that we’re talking about is conventional loans, right? Conventional VA loans, FHA loans. They all allow gift funds when you’re buying it as an owner-occupied. So you’re buying it. So if you’re going out there buying a house that you’re going to live in there, uh, gift funds are allowed and gift funds are allowed, uh, to a certain.
Benson Pang: So some lenders might have an overlay where you have to bring in a certain amount of maybe minimum of a couple of percent of down payment for yourself. Or, uh, some lenders can allow you to go up to a hundred percent of the down payment as a gift funds. So typically I see that the gift funds are coming from relatives or go boyfriend, girlfriend, fiance.
Benson Pang: Um, but typically these are relatives that are providing this gift.
Josh Lewis: Absolutely. And there’s, there’s a few additional steps you’ll have to do. You’ll have to complete a gift letter. Some programs will
Scott Schang: All right. Well, Josh is working on that. I kind of, I actually wanted to go back one step, uh, you know, Benson, you talked about, uh, in your savings account, there’s, there’s a, a term called, um, season. Right. And so, and so usually the bank, usually the lenders, when they’re, they’re gonna ask, they’re gonna ask for what they asked for a couple months of bank statements, right?
Scott Schang: What are they
Josh Lewis: looking for
Benson Pang: two months of bank statements or they’re looking at 60 days prior to your earnest money deposit. So they want to see the history, the transactions that leading up to your, your, uh, your purchase transac.
Scott Schang: If they’re looking for large deposits. So sourced in seasoning is a really important thing when we’re talking about any sort of money for down payment and, and closing costs.
Scott Schang: And so that’ll come up a few times. Uh, during this, Josh, do you have, uh, you back
Josh Lewis: online? Well, the best part is this thing’s been plugged in all day and somehow it still thinks it’s out of, out of batteries. So we’re gonna have a fun little orange cord hanging over my shoulders. but, um, what, what we’re saying with the gift funds you’ll need to have a gift letter that, that explains that relationship that Benson was talking about that has the contact information for the gift donor that says where they’re getting the funds now on conventional loans, you don’t always.
Josh Lewis: Provide the source of funds. You can wire directly into escrow, and that shows the source of funds. Um, other loan types are gonna actually require your gift owner to prove that they have the money to give it to you much along the lines of what Scott was saying in terms of source of funds. They wanna make sure that we’re not, um, bringing in unusable funds and just saying, oh, here it’s a gift from someone who didn’t actually have it to give.
Josh Lewis: So your loan officer will walk you through all of that fun stuff. It is.
Scott Schang: Experienced loan officer will walk you through that. What, what, what you wanna be careful of. And, and I, this, this happens all the time. Yeah. My mom just gave me a check and I deposited it into my bank. Right. Or she gave me a stack of cash or something like that.
Scott Schang: I, if, if at all possible. And, and you know, we’re gonna say this over and over again. If you’re working with, and this, this happens a lot with inexperienced loan officers in call centers and these big, you know, big national call centers. If you’re trying to push a button, get a mortgage, you could get bad advice or, or more likely not bad advice.
Scott Schang: Sometimes it’s sometimes it’s, it’s bad advice by exclusion, right? They don’t know you. They don’t know what to tell you or how to advise you. Uh, when you’re doing this, but, um, if you have the ability to have the person who’s gifting it to you while you’re it directly to escrow or to the closing entity, if you’re, you know, not in an escrow state right.
Scott Schang: Then, then that’s usually the, that’s usually the cleanest way to do it. Uh, with the least burden to the person that’s giving you the money. Cause it, I mean, let’s face it. You know, it’s hard to ask for money and so you wanna make it as easy on them as possible. And I’ve seen it where they’ll gift you the money.
Scott Schang: They’re they say, they’ll gift you the money. And then the paperwork, you know, requirements start coming in and the person giving you the money starts getting a little nervous and they’re like, well, I don’t wanna give them this. And I don’t want to give them my bank statements. So, you know, Josh, what’s the best way to avoid that.
Josh Lewis: It’s not always avoidable. FHAs gonna require that you show the Don’s ability to gift. So it’s something that we want to talk about and address up front. Um, I had that conversation with a client on, on a deal about two years ago, and we get to closing and dad wires the money into escrow, and we say, where’s the statement?
Josh Lewis: She says, oh, he won’t give it to. Said, well, when were you gonna tell me this? Um, so we talked to him, get him the phone. He says, I’m worth millions. You don’t, you don’t have the right to see my stuff. And I don’t remember exactly how we worked through it, but we did end up getting something from his bank stating that he had the funds and it had been in there.
Josh Lewis: Love don’t ya . Yeah, no, the guy was just a monster pain in the. But, um, its one those things where, where again, you tell the people front, but obviously in that relationship, she was happy to get the money and didn’t want to upset dad. So we got to do it.
Benson Pang: Yeah. Sounds like, uh, it sounds like you were in my transaction a couple of years ago.
Benson Pang: Same thing, same exact thing happened. Dad didn’t want to show bank statements and it took a couple of days for him to sit and really think like, should I give them the bank statements? And finally he gave in.
Scott Schang: Well, and most, most of the time they’re concerned about their privacy and they, you know, they’re afraid who’s gonna see it and, and all these things.
Scott Schang: And, and, and so most of the time it just requires an education and. Um, but you don’t, nobody likes surprises. Right? So if we can, if, if, if you’re getting gift funds, um, make sure you have that conversation with your loan officer, explain to ’em that you have gift funds, ask them will anything be required from the person giving me the gift.
Scott Schang: If you can address that up front, then that gives you a little bit of time. Schmooze mom and dad and, and make him feel comfortable. And, and a lot of times you get ’em on the phone with Josh or Benson, and they’re gonna explain it and, and say, no, we’re not posting this on the internet and disclosing your assets to the world.
Scott Schang: Um, this is private and you know, this is why we need to see it. And nobody’s gonna access
Josh Lewis: your accounts. No, it’s very important to let the gift donor know. Look, if you don’t want the Don need the person you’re giving the money to, to see it, that’s fine. Send it directly to me, fax it, um, securely upload it, and we’re gonna send it to the lender.
Josh Lewis: And it’s gonna go to the underwriter and it’s gonna go into the file no different than if you yourself went to get a mortgage. I’m sure you’ve got a mortgage before, right? And you had to give bank statements, correct? Yeah. So the only thing you could be worried about is your daughter seeing your bank balance, and we can absolutely assure you that’s not going to happen.
Josh Lewis: Yeah. And sometimes that works and sometimes you get difficult people who don’t wanna listen to logic. So let’s look at number three, this one, um, easy in theory and not as easy in the real. Cash on hand. Um, in some communities it’s very common to save money at home and not trust banks as much. So, um, some loan programs are going to allow this.
Josh Lewis: Um, it can be cumbersome, it can be difficult. So, um, before maybe I turn it over to Benson to kinda walk us through that a little bit, the easy button here. If you have cash at home and you need to use it for closing, if you put it in the bank and it’s there for two full cycles of statements and you don’t see the large deposit, it’s essentially seasoned.
Josh Lewis: You know, most people, if you’re thinking of buying a home, can foresee that situation and, and work around in that way. But there are people that are like, Nope, I’m keeping my money at home. So Benson let’s, let’s say you’re doing, um, an FHA transaction for someone and they need $22,000 to close and they’ve got $1,800 in the bank and $22,000 under the, uh, under the bed.
Josh Lewis: How, how does that work?
Benson Pang: Well, I would definitely don’t don’t deposit it now when you’re, when we’re in the middle of an escrow, right? We’re not, we’re not in a position for you to put it into the bank and, and have it seasoned. It’s no, it’s you can’t season something in the middle of an escrow while you’re under contract.
Benson Pang: So typically we would advise them to talk to a family member and, and. As a gift, get, get gift towards your closing cost, get gift towards your down payment. Um, in fact, for the down payment, one of my clients, this is a few years back, uh, what he does in my, in, in our community. Um, they like to take money out as soon as they deposit their.
Benson Pang: so they go work at a job, they get a paycheck and then they’d bring it to the bank and get it cashed. They then take the cash and put it under their mattress. Mm. And this went on for three years and that’s how he saved up 70, $72,000 towards his down. so when I asked him, okay, so how much are do you have in the bank for down payment?
Benson Pang: He said nothing. Uh, but I have $72,000 in cash and we all know what industry, uh, you know, handled a lot of cash and he is not in an industry that he handles a lot of cash. And I said, how do you, how do you do that? How do you have so much cash? And that’s how he explained to me. And I said, well, go deposit it into the bank because I can’t use cash.
Benson Pang: Escrow is not going to allow you to bring a suitcase worth of cash and, and go, Hey, here’s my down payment. Right? You need to put it deposit the money in the bank way, two months, and then you can have it seasoned. And then you can wire the money into the ESC.
Scott Schang: And, and again, this, this goes to, and this is kind of the mantra that we are always doing here at find my way home is.
Scott Schang: You know, we see this all of the time and, and you talk to real estate agents and, you know, they get a preapproval letter from somebody cuz you called some internet bank and you just said, oh I have $70,000 down payment. Cool. Here’s your preapproval letter. Let’s go make an offer on this house and nobody’s asking questions and nobody’s verifying anything.
Scott Schang: And that’s the challenge that you have. And that’s why it’s important that you’re working with somebody who’s a, professional’s been doing this a long time. Uh, do not let anybody make an offer for you. Um, or have you go out shopping for houses if they haven’t asked you for those bank statements and where’s the money coming from and verified your employment and run your credit and done all of these things.
Scott Schang: Because I, this sounds silly to me, and it sounds obvious, but, but consumers don’t always know that they just know, wow. That was the easiest experience I ever had. I didn’t have to do anything. I just called and they sent a letter to my real estate agent. And that could put you in a whole heap of trouble.
Scott Schang: If you got $70,000 making a lump in your mattress. And I
Benson Pang: get, I, I get, um, a lot of some, some real estate agents will come up to me and say, Hey, how come that lender? Isn’t doesn’t have to ask so many questions. Why do you have to ask so many questions? Why do you need all that document? well, the last thing you want to have the home buyers experience is, Hey, they walk up to a home that they really, really, truly love, right?
Benson Pang: Their whole family, mom, dad, daughter, sister, brother. They all went to go look at the home and oh my God, we all fell in love in it. And then you guys get into escrow and then. Don’t qualify for our loans. We can’t use your assets. We can’t use your bank statement. Like any of that one thing in the 400 boxes that we have to check any of that one thing doesn’t work out.
Benson Pang: You don’t get a house. So. Get get yourself preapproved. Get your clients preapproved with a, with a real like mortgage broker who is going through all the boxes and, uh, make sure they are qualified before taking them out to go look at homes.
Josh Lewis: So let’s look at the, the next option here. Um, it’s using your 401k, your retirement accounts.
Josh Lewis: Um, 401k is, is an easy one. And we get this question a lot. Can I, and then should I use money out of my 401k or an IRA? So. These are gonna vary your 401k. You can borrow up to $50,000. It’s max. You can borrow from it. Um, and borrowing from it to me is a good way of accessing the funds, taking a distribution from it when you’re not of retirement, age is a not so good way of doing it.
Josh Lewis: You’re gonna pay taxes. It’s gonna get added to your income. You’re gonna be taxe. You’re gonna be. Paying a 10% penalty. So you worked so hard to save that money in your 401k, and you’re basically burning a big chunk of it. So borrowing from your 401k is good. IRAs are a little bit different in, in how they work.
Josh Lewis: Um, one of the best is a Roth IRA. If you’ve been saving in a Roth IRA, you can pull the contributions out, not the growth of, of the money you put in there, but your contributions, you can pull out. So to me, I, I like these options. It’s your money? You’ve saved. And if it’s a 401k and you’re taking it as a loan, you’re gonna pay it back to yourself.
Josh Lewis: So you’re not giving anything up. You’re just basically getting the benefit of those funds to get you into a home, uh, before you’ve been able to save enough, uh, in addition to those funds and then what continues to work
Scott Schang: for you in your retirement
Josh Lewis: plan, you’re still getting interest. You’re paying yourself interest on it.
Josh Lewis: And the best
Benson Pang: part is if your, if your employer is matching your 401k, they’re basically contributing to towards your down payment.
Josh Lewis: all of that. And, and again, you’re, you’re saving pre-tax so you can save a little faster in there. I mean, you are gonna have to, to repay yourself, but it, it’s probably the fastest way to accumulate the funds, uh, to, to get, uh, a down payment.
Josh Lewis: So let’s look at the next one. This only applies to business owners, but most people don’t know, or they’re not exactly aware of what they can do. In most loan programs, you are able to use funds from a business. You’re gonna need to get with your CPA most likely and get a letter that states that using the funds from the business account is not gonna have a negative impact, uh, on the liquidity and the cash flow of the business and its uh, ability to, to function.
Josh Lewis: Um, this one doesn’t come up a lot, but we do use it. Do you come across this very much? Benson? Yeah,
Benson Pang: we come up. The, the biggest hurdle that we we go through with this business account is, uh, when the CPA is too busy or the CPA might have to charge a thousand dollars, $2,000 to, to get this letter and some CPAs just flat out, don’t write any letters.
Benson Pang: Um, so make sure you, you’re talking to a CPA that is going to be able to write this letter away before you need this letter.
Scott Schang: Now Josh, is there challenges with I’m gonna transfer the money from my business account, into my, into my personal account. Does that, is that cause any, any challenges beyond just having to paper trail, that you have that money in
Josh Lewis: there’s not any different than any other loan.
Josh Lewis: You just now have two issues. You, you have to prove that the business can, uh, function without those funds and that you have the access to them. And you have to source them. So it, it, it’s just an extra complication. So again, like we talked about with the gift funds, easiest to wire them directly into escrow easiest.
Josh Lewis: Once you’ve sourced with your business bank statements to wire directly, uh, into escrow there a as well. So the, the next two, um, The the next one. Let’s just roll it out right here. This is an interesting one. Um, because people are gonna go, what are seller concessions? I’ve never heard of these things used to be incredibly common years in the last 2, 3, 4, 5 years.
Josh Lewis: Like I Benson. When was the last time you saw a transaction with a seller concession? Not after the fact. I mean, in the upfront contract, we see it a lot where the seller will say, Hey, I’m not gonna, I don’t wanna do the repairs. I’ll give you a $5,000, uh, concession. I mean, we went in, I said, I’ll pay you $500,000 and I want a $5,000 closing cost credit.
Benson Pang: It’s been a while. It’s it definitely has been a while. I mean, you get, you see it more often after you get into contract after you, uh, you see repairs, but that, that needs to be done. And you ask for concession, but not upfront, you’re not going. It’s been a long
Josh Lewis: time. And, and I don’t know, like for me, I couldn’t tell you when it was, it’s been long enough that I couldn’t tell you probably three to four years ago, but I did have this conversation just this morning, um, with, uh, someone who watched Livos on last night, she reached out today.
Josh Lewis: Um, she’s in Northern California. Wanting to buy a manufactured home. It’s in a high fire hazard area. So it’s fallen out of escrow a couple times. It was a flipper that flipped the manufactured home says it’s beautiful, but it’s $270 a month fire insurance for a $220,000 manufactured home. So we went through it and she says, here’s what I want to do.
Josh Lewis: So this is actually gonna combine number four and number six, she says, I have the money in the bank. I don’t wanna use my money. She I’ve already checked into it. I can get a reasonable loan from my four. So there’s my down payment and I’m gonna ask the seller to pay all my closing costs. And she says, I think they’ll do it.
Josh Lewis: Cause they’ve already had to cut the price twice. They’re a flipper, they’re sitting on this and we’ll, we’ll see there, we’re finishing the preapproval. They’re gonna write their offer, but she may be able to, to pull off both seller concession and ending up, uh, getting a 401k loan. So we didn’t really actually define what a seller concession is, but it’s, it’s fairly self explanatory in your.
Josh Lewis: You ask the seller to pay the closing costs for you. And you may say, why would a seller do. the seller really cares about the highest net that they can get for their home. So if the home’s worth $500,000, we’ll appraise for $500,000, but they’re only getting offers for four 90 and you say, I’ll give you 500, but I need $7,000 in closing costs.
Josh Lewis: You’re gonna net them $493. So they say, why not? So the big issue on the seller concessions is will the property appraise, um, for the purchase price. And are you still able to net the seller the most money when they give you this money back at closing and people will often ask, well, how do I get the money?
Josh Lewis: You don’t get the money. It comes out of the seller’s proceeds and it is escrow just moves it. They debit the account, uh, on the other side for the seller and they credit your account and you bring in, uh, that much less at closing. So the next one here. Is a lender credit. And this one, a lot of people just absolutely don’t know about.
Josh Lewis: And it’s been much more common in the last few years, especially with rates low and sellers, not giving concessions. Ben, why don’t you walk us through what a lender credit is and how it works?
Benson Pang: Yeah. So when we’re giving out an interest rate, right? And, and a lot of people when, when we’re talking about interest rate, people are thinking about, oh, I need to get the lowest interest rate.
Benson Pang: Well, the reason why you people naturally is drawn towards that is because you’re driving down the freeway, right? They’re seeing the billboards, that’s saying this incredibly low interest rate. And when we’re quoting a rate, we’re talking about zero points, right? At par you, you don’t have to pay any dollars towards that interest rate, but when you’re driving down the freeway going 80 miles per hour, there’s this fine print underneath.
Benson Pang: It’s that amazing attractive interest rate that says you have to pay two points and you have to be at, you know, what, 50% down, whatever it, that is, right. A 20 credit score, a 20 credit score. Exactly like a unicorn. Right? So for us is we always have to, uh, battle that up front and say, Hey, we actually can offer the same rate, but it doesn’t make sense for you to buy the points.
Benson Pang: And what you can do is go with a zero points. But little people know that, uh, you can actually go the other way, which is getting accredit towards a closing cost. So let’s say if your interest rate is, um, let’s say today at, at five, 5%, right? 5% at par, meaning you don’t, you’re not paying any points and you probably see it on billboard 4.75, and you pay two points.
Benson Pang: You can actually go up the other way and say 5.2. and you can get maybe a couple thousand dollars towards your closing cost. And a lot of times when we are working with, uh, clients that is only doing three to 5% down, they’re that closing cost means a lot to them and giving them that credit and they’re able to pay the monthly payment versus getting the credit.
Benson Pang: It’s incredible. Um, and just to give you an example for, for each. I was just telling someone each $10,000 in points that you’re buying, you’re basically, uh, saving. Uh, you’re you’re the other way for each $10,000 credit that you’re getting, you’re basically paying a hundred dollars more and monthly payment, uh, which will break even in about seven years.
Scott Schang: So, well, here’s another thing that I wanna bring up that that’s important is both six and seven, the seller concessions and the lender credits can only be used for closing costs. Those cannot be used to pay your down payment, right? Gift funds can all of the other ones that we’ve talked about can, um, but credits from.
Scott Schang: An interested party or, or credits from the seller or from your interest rate can only be used for the, for the, for the, the, the closing costs. But like you said, Ben, when you’ve got these, you know, when you’re doing the, the, the home ready or the home possibles at 3% conventional or three and a half percent FHA and the, and.
Scott Schang: The consumer, the home buyer has the down payment, but they don’t have the closing cost. Th that’s a really, really smart, good way to do it. You take a little bit higher interest rate. Yes. Your payment is a little bit higher, but it covers all of those closing costs and it secures you and it gives you that home.
Scott Schang: And you start building that, building that equity, creating that generational wealth and locking in your payment for the next 30 years. And, and it’s a trade off. It, it it’s a trade off and, and advertisers, you know, sometimes it’s not paying two points, sometimes it’s a six month adjustable. Right. And it’s like, oh, I can, I heard I could get an interest rate for 3%.
Scott Schang: Well, you can. But then after six months it’s going to adjust or after a year it’s gonna adjust and there’s all these different things. So it doesn’t, it it’s doesn’t, you don’t always have to take the lowest rate. That’s, that’s kind of the beauty of working with somebody like you guys, um, that been been in this business forever.
Scott Schang: I don’t, I haven’t done loans in a couple years, but I did for 20 years. And you know, it’s all the time, especially first time buyers. Um, this is a, this is, this is one of the more common conversations that we’ll have with first time buyers. That money is tight.
Josh Lewis: Yeah. And one, one of the cool things to note here as the market, Maybe it becomes a little bit more normal and you might be able to get a small lender credit.
Josh Lewis: You can combine these, you can get, uh, I meant a small seller concession. Yeah, you can combine a seller concession and a lender credit say you have $10,000 of closing costs. You can get a $5,000 seller concession $5,000, uh, lender credit, and end up coming in with only your, your down payment. So that’s a really good option.
Josh Lewis: And, and one of the things I get asked really often on this is why, why would a lender do this? Why would a lender give me money? Say as Benson was saying, there’s a par rate on any day where they don’t charge you points and they don’t give you a credit. So in the example where someone wants to advertise a really low rate, they say you have to pay two points.
Josh Lewis: Well, why would the lender take a really low rate? Well, cuz you’re giving them 2% of the loan amount upfront. They’re getting prepaid. So they’ll take less over time. What you are saying when you want a lender credit is I’ll take a higher rate. I’ll pay you more over. But I want that money up front from you for me doing that.
Josh Lewis: So it’s a trade off. You’re taking a slightly higher monthly payment for not needing to come in with nearly as, as much money at closing. So the next one here, as we transition to Scott, I’m gonna roll this one over to you because you had at the start of find my way home, um, really had seen many of these programs and talked extensively about them.
Josh Lewis: So tell us a little bit about employer assistance programs and how they work.
Scott Schang: Yeah, employer assistance programs are tricky. Um, but a lot of times bigger employers, they have programs. Now here’s, here’s the criteria. So an an employer assistance program is that your employer will give you money for down payment.
Scott Schang: To help you buy a home because obviously employers, especially big employers, they want their employees to live close, right? Because it it’s loyalty and, and they can, they can stay close. So they want ’em in the community. Um, that was usually the common thing. But what we would run into is you have the small business owner that rose, that runs Joe’s plumbing shop and he has five employees and he is like, sure, I’ll cut you at, I’ll give you at $15,000.
Scott Schang: It, it doesn’t really work that way. In order to use an employer assistance program, it has to be documented in the employee manual and it has to be available to all employees. It can’t just be your friends with the boss and he’s gonna, he’s gonna lend you the money. That’s, that’s a gift and not all lenders are going to, not all programs are gonna allow you to get a gift from somebody who’s not related to you.
Scott Schang: So, if you’re using an employer assistance program, you wanna check your employee manual check with HR. You’re, it’s rare that you’re going to see an employer program. If you don’t have an HR department, it’s usually a benefit that a, a, a larger company will. Provide to, uh, its employees.
Josh Lewis: And, and most times if you’re eligible for it, if you’re at a company where it’s available and you’re eligible for it, you’ll know these people always tell us, ah, I’m eligible for this.
Josh Lewis: It’s not, it’s not a, a secret just cuz it’s such a cool benefit. Um, number nine here is an interesting one, sell personal property stocks, metals, and crypto. We’re gonna leave crypto for the last part, but let’s take an easy one like personal property. So let’s say that. Benson has like a sweet 97 supra from like the, the awesome one from fast and the furious.
Josh Lewis: And those things have gone through the roof and they’re worth like $200,000. And now he wants to go buy a house, but he doesn’t have any money, but he’s got his supra. Okay, we can do that. He can sell it and he can use that money. But what’s important is the asset. We have to be able to show what the value is and the reason why I used something crazy like that souped up 97 supra is that it can be difficult to prove what one is worth.
Josh Lewis: The last five auctions. One might have gone for 1 25. One might have gone for 1 95 and then one might have gone for 2 75. So you have to be able to prove that what you were paid was reasonable. You have to have a bill of. You have to have value, uh, some type of valuation on it. And you have to prove that you received the funds, but if you have assets that can be valued, you can absolutely liquidate those assets.
Josh Lewis: So
Scott Schang: well, app praised in appraised too, right? I mean, there, you have to be able to prove the value is what you’re saying.
Josh Lewis: Yes. Exactly. Yeah. And sometimes it’s, sometimes it’s not an appraisal with metals. I mean, we know, we know what the price of gold is, so, Hey, I, I had 10 ounces of gold and we know what the price is today.
Josh Lewis: That’s easy enough for us to document. Yeah. That 1997, super, not a super liquid market. They don’t publish in the newspaper or on Google every day. What one of those is worth, but it can be
Scott Schang: anything, right. It can be, it can be a boat. It can be a, it can be a car. It can be. An antique cabinet or something like that.
Scott Schang: But again, the, you know, as you get things that are harder to harder to prove what they are worth, but that’s a, that’s an important
Josh Lewis: part of it. It cannot in under any circumstance, be your spouse. You cannot sell your.
Scott Schang: No, no I had . I,
Josh Lewis: I personally would never sell my dog, but I ha I do have a client currently who sells dogs for a living. It’s not his dog. He sells dogs. So, um, lots, lots of those. So, um, and the reason why we, we kinda leave crypto off on its own. It’s so new. That most of the loan programs don’t have guidelines for it.
Josh Lewis: Um, and the prices, it trades 24 hours a day. Um, yes, you can go to somewhere like Coinbase or one of these other exchanges and see the price at any given moment. Um, but it, it, it’s a tough one. Benson, have you ha had a client used crypto in any way for a closing that they hadn’t already sold in season before?
Benson Pang: Uh, we actually have one recently. We were trying to use the crypto liquidate the crypto. However, the one downside of it is how do you prove, you know, how do you provide bank statements to show two months that you you’ve owned this crypto? Cuz they don’t have bank statements or even if they have statements, it might not have a certain thing that the bank needs.
Benson Pang: which is maybe your name, you know, or it, it might be missing your name. It it’ll have your wallet number, but it doesn’t have your name because the, the crypto doesn’t belong to you. It belongs to the wallet number.
Josh Lewis: So the, the best advice with crypto is if you need to use it for your closing, treat it like your cash on hand and get it somewhere, uh, convert it into dollars and into a bank account, uh, as, as early as possible in, in the transaction.
Josh Lewis: So the last one here, this one is, is Scott’s. Favorite one. He, he likes his big tax refund every year. Uh, and he, he waits for it and then figures out whether he is gonna go to Tahiti or whether he’s gonna get a new Maserati or whatever he is gonna do every year.
Scott Schang: I I’m just, I’m just here reminiscing of.
Scott Schang: How many years it’s been since I’ve seen it. I I’ve been self-employed my whole life. I, I, I think maybe when I was a teenager, maybe I got one, um, though it always goes the other way that, that I’m always cutting checks, but yeah, this is, this is a good one. Um, and, and, and know, and you know what, I always end up writing an article or doing a video, uh, right around tax.
Scott Schang: Uh, right in the beginning of the year, and I’m saying, Hey, when you got that tax refund, tax refunds are considered source and season. So you just have to show that you got the refund from your tax return. Um, also if you get an insurance claim, like, um, Uh, inheritance is another one that we didn’t, that, that we didn’t put on there.
Scott Schang: Um, but like an insurance claim or a lawsuit, you just have to show the court documents that say that you received this, um, you received this money as a part of a lawsuit. Um, but these funds can be used without, uh, I don’t know if I’m, I don’t know if I’m misspeaking here, Josh, but I’m, I’m pretty, especially tax funds are considered, uh, seasoned.
Scott Schang: Um, but I believe insurance and, and lawsuits and things like that. Um, if you just show that, you know, you were legally awarded this money. Um, that it is considered, uh, source
Josh Lewis: stand season, all, all of the things that you mentioned here. Um, and I was gonna throw in a divorce settlement, but that’s just a, another version of a lawsuit.
Josh Lewis: As long as you can document that you were awarded these funds, these funds were owed you and you received them from the source that was supposed to pay you. They are immediately usable. So those are the things that you’re, you’re looking at. With those. So, you know, sort of in, in closing everything up, um, you guys I’ll give you each chance to kind of say anything that you want here, but circling back to what we said really early in the show, work with an expert, um, work with someone that is asking you a lot of questions front, my job on the front end is to.
Josh Lewis: The question to discover the question behind the question to make sure that your process of buying a home from the financing side is a non-event. You can worry about the appraisal. You can worry about whether it’s gonna pass inspection. You can worry about whether the seller’s gonna act, right. You should not have to worry about the loan it’s because we’ve gone through all of this before you even went out and started looking.
Josh Lewis: We know you have usable good funds. To, to complete your transaction. Like, this is amazing. Like I Benson you won’t be amazed at this, but we talk to people all the time that have talked to other lenders. I, one of my calls today, they said, yeah, the guy preapproved this for 580,000. Cool. And what was the rate?
Josh Lewis: It was 4.75 was an FHA loan. It’s not a great. Rate, but it’s not a terrible rate. I said, okay. So did you go through what your monthly payment is gonna be and how much cash do you need to close? Oh, no, he didn’t tell me any of that. So what we’re talking about here is what are the acceptable sources of cash to close, but it’s important that you have an accurate calculation of how much cash you’re gonna need at close.
Josh Lewis: Um, otherwise you can still find yourself in a pickle with that. So. Work with an expert, go through, uh, the process and, and be guided by them. So I don’t say call and talk to the first person, but make sure you’re looking at their Google reviews, make sure they were referred by someone. Make sure you get a good feeling from them in that conversation that they’re asking the right questions that they’re listening to you and picking up on the things that you’re telling them and that they’re giving you the information.
Josh Lewis: That you need. So on this topic, that’s all I have. Gentlemen, you got anything else, Scott, you wanted to go through?
Scott Schang: Uh, well, uh, thank you, uh, luxury, uh, card store, uh, for the kind words we really appreciate it. And, and you know, the, the. It’s it’s funny. The, there, there was, there was a time, uh, when there was a ranking of most trusted professions and loan officer was right about there with used car salesman and right around 2008, it kind of flipped.
Scott Schang: Right. We kind. We go, we got the number one spot as the least trusted profession. But, uh, and, and that’s actually, when we started find my way home, that’s when I started find my way home. And my goal has always been to bring people like Josh and like Benson together onto one place where consumers can. Um, when you go to, when you go to the website, Um, you’re gonna see, Benson’s telling stories about helping clients and, and, and sharing his experience and his expertise on video, uh, and the same with Josh.
Scott Schang: And you get to know these people and they’re here to answer your questions. And again, Benson said this, if they’re, if the loan officer is not asking questions, if they’re not checking the 400 boxes, you think it’s tedious. This is the one time that you’re gonna have to do this, but you get to walk away with a home.
Scott Schang: We have to do this every day. We come into the office, we’re checking these 400 boxes and making sure that we don’t miss anything. And it’s a complex thing to buy a home. But when you’re working with an expert and they’re doing all the homework, I always say the harder that it is upfront, the easier it’s going to be.
Scott Schang: The rest. Process and nobody likes surprises. And that’s why we ask you all these questions and we dive in deep and we, and we’re asking, you know, I mean, it sounds like we’re running you through. You know, running you through the gamut here. Um, but there’s a reason for it. And the reason for it is because we want you to enjoy the experience so much that you tell everybody that you know, that we did a great job.
Scott Schang: That’s how most of us make a living is that we do such a great job that you tell everybody that, you know, and you send them to us because we’re trying to protect. From these big box lenders and these call centers that literally, like, if you see a commercial for a lender online, these companies literally spend billions of dollars a year to convince you that the way that you purchase the biggest and most important thing in your life is that you fill out a form on the internet and you end up with some kid in a call center in Detroit, somewhere reading off of a computer screen.
Scott Schang: And that absolutely freaks me out. So I, I, I appreciate. You know, you guys that are on here and anybody that’s watching this, um, this is why we do these things. Uh, we don’t wanna scare you away. Um, but we wanna let you, we wanna prepare you, uh, for what this process is and make sure that you can get matched with somebody that you can feel confident that they’re gonna guide you through that process.
Josh Lewis: No a hundred percent Benson will, will give you sort of final thoughts here before I close it out. Anything else? Either just on sourcing funds, anything in general you wanna share?
Benson Pang: Yeah. Um, just to piggyback off of Josh too, like I actually have a client who, uh, VA. Uh, veteran came in for a loan and, and, uh, apparently she has already been pre preapproved by some big box lender that is also veteran veteran, uh, friendly,
Josh Lewis: um,
Benson Pang: because she already banks with them. Um, oh. But it it’s an easy way to get the preapproval letter. And they said, okay, great. What are you shopping for then? Like, why are you coming to me? Well, shopping for rate. And I was like, okay, what, what rate did you get? And then she’s like, oh, I don’t know. Okay. What is your monthly payment?
Benson Pang: I don’t know. What is your cash to close? I don’t know. Like. So, what do you know about this loan? Oh, I got a preapproval letter to buy X, Y, Z amount, and then I’m like, oh, oh man, you haven’t talked to the loan officer since then. Nope. Haven’t talked to a loan officer since he, she got the letter. I’m like, okay, let’s get you a real preapproval letter.
Benson Pang: so it’s just the importance of working with someone who can. Give you a clear mortgage plan, right? I think it’s at the end of the day, it’s, let’s get all the documents in, get all the boxes checked, right? Like if you’re put using a 401k towards your down payment, get, get the 401k withdrawal form ready.
Benson Pang: Right. Um, and we’re like, if you tell us what you’re doing, we can walk you through what documents you need to provide any of the last 10, um, 10 ways that we talked about getting, getting financing. So I think that’s very, very important. And I, one of the things, uh, lender credit is something that I, I, uh, I practice what I preach when I bought my house.
Benson Pang: In 2015, I got all the lender credits to cover all my closing costs and my impound account and my prepaids man. That was good. You know, what’s so good about it. Six months later, rates dropped. I just refinanced myself into a lower rate. Guys, it’s something that we went through and we experienced and we’re trying to help you is we’re not trying to sell you anything that we wouldn’t do.
Benson Pang: It is something that we absolutely would go
Josh Lewis: through ourselves. That that’s super important. And, and what the reason, again, sort of in closing here, we’ve talked about the importance of working with experts. We went through a topic tonight, but working with an expert, that’s going to make you comfortable.
Josh Lewis: So shopping is never a bad idea. I tell people, Hey, if you wanna shop me, I want you to do that. Cuz you’re not gonna have this conversation with the other people that you call. So, and, and if you do, if you talk to someone that you think is even better, then you’re in good hands. The people that I see that get.
Josh Lewis: Themselves in the worst pickles are the ones that went with the easy button, the first person they found the person they found online and then halfway through the process or worse. Yet two days before closing, we hear from them, can you fix this? You’re like, no, you’re two days from closing. I can’t fix this for you.
Josh Lewis: So long way of saying that’s why Scott created find my way home. That’s why we have the expert network. That’s what everyone is here for. So if you need help, if you want a second opinion on your loan, if you have a loan estimate, if you’re in process, Uh, reach out the, find my way, find my way home.com. We have a entire network of experts.
Josh Lewis: We have someone who is licensed in your state, who can look at what you’re dealing with. And I’ll tell people straight up front, if you’re getting a good deal and you feel comfortable with someone I’m not gonna try and take the deal from them. I, I wouldn’t want someone to do it to me and I won’t do it to them.
Josh Lewis: You know, if you’re have reasonable rate and fees and you’re in the process and you’re happy with the person close the. But definitely reach out and get the peace of mind. So hopefully that’s what we, we can give you here. Hopefully we’ve given you some of that tonight. If you’re watching this live, if you’re watching this later and just, uh, diving into sources of funds, but we appreciate you watching either way and we hope to see you email@example.com sometime soon.
Josh Lewis: All right. Have a great night. Thanks guys. Thank
Benson Pang: you.
About the Author
Do You Have Questions About Qualifying?
Find a Mortgage Expert Near You
Find a Mortgage Expert by State