“Free” Houses for Veterans?
Jul 10th, 2007 by Oscar
By Thomas Kerns McKnight, Esq.
Well, not exactly. You will have to pay the money back, and there are some minor upfront expenses that you cannot duck. But essentially there is no-money-down financing available for houses that can cost up to $2 million. That includes access to settlement costs paid by the people selling you the house. In other words, it actually feels like it’s almost free going in. Let’s pause for a moment, however, and make sure you are aware of some of the hidden costs in buying a “free” house.
Appraisal - As soon as you sign the contract for a house, you will need to pay for the appraisal. Count on paying between $300 and $600 cash. Sometimes they take your credit card. The lender will set up the appraiser because there has to be privity of contract between the two. But you will need to pay the money upfront.
Reserves -You will need six months of mortgage payments (including escrows for taxes and insurance) stashed somewhere in your finances. It can be in your retirement (they will “see” only 75% of those funds), savings, stocks and bonds, or checking accounts. Note that you will not need to pay anything here. The lender will just want to see these funds parked somewhere in your name, available as reserves in case you encounter severe financial reversals.
Broker’s Fees - These are paid by the seller, not you.
Settlement -You will have settlement fees to pay out of your pocket at the closing. However, the lenders will allow the seller to pay up to 3% of the purchase price as buyer’s settlement costs paid by the seller. Since settlement costs are normally below 3%, that can mean that this number can be zero for you. The costs here include title abstract and examination, processing, underwriting, title insurance, and so on.
Points - Since you are striving for the lowest possible cost to own the house, points are likely to be zero. This means that the entire payment for the mortgage will come from the rate, a number that will be lower if you pay points. It’s like the old teeter-totter in grade school. The higher the points on one end, the lower the rate on the other and vice versa.
Hazard Insurance - You will need to pay your first premium on your hazard insurance upfront and provide the insurance declaration page to the bank before you will clear underwriting. Sometimes USAA can deliver a really inexpensive product to you if you qualify. Talk to an insurance broker about this.
PMI -You will have to pay private mortgage insurance if your loan is above 80% of the value of the house. However, if you take a second mortgage on the house at purchase, there will be no PMI. So this is likely to be zero.
VA -Your VA benefits might provide you with access to a VA loan that can be 100% financing for a house up to $359,650 in value, depending on the market and your eligibility. Sometimes it can make more sense for you to buy your house with a conventional loan rather than a VA loan.
So as you see, assuming you qualify for the loan, you can close on your house by paying as little as your appraisal and your hazard insurance, possibly under $1,000. True, it’s never really truly free in the literal sense. But if you want to buy a house, it’s close enough. Amazing! Besides, if you can’t afford a thousand dollars to buy the place, how is it that you plan to pay back the loan? If you are having trouble finding someone who can deliver a so-called “free” house to you, send me a note and I’ll find someone for you: tmcknight@cmmtrust.com.
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