What to Do If You Do Not Have Funds to Close on a Home

When buying a home, there are certain costs that you’ll need to cover before you become its legal owner. For instance, you’ll likely need to pay property taxes for the rest of the year, pay your agent fees, and cover any costs imposed by your mortgage lender. Ideally, you’ll budget for these costs ahead of time, but there are steps that you can take if you are short of funds prior to closing.

Roll Closing Costs into Your Loan

You may be given an opportunity to roll closing costs into the loan itself so that you don’t have to pay anything out-of-pocket. However, this will increase your loan balance, which means a higher monthly payment, and it may also mean paying more interest over the life of the loan.

Try to Pay Down Other Debts

While you don’t want to accrue new debt to raise money to pay closing costs, you could pay down existing debts to reduce your monthly payments. This may give you another spare cash to use when closing day arrives. Debt consolidation or a balance transfer may be the fastest and easiest way to reduce your monthly payments, increase your credit score, and help relieve your existing burden.

Loans

Certain types of loans allow friends or family to gift the money needed to pay closing costs. However, you’ll need to document where the money came from and verify that the funds are a gift and not a loan. The good news is that gifts may equal up to one-hundred percent of what is needed at closing, which means that you can get the money that you need without causing financial hardship in the future.

Sell Belongings

It’s generally not in your best interest to take out new debt prior to closing on a home. It’s also generally not in your best interest to file for bankruptcy prior to closing on a home as it will tank your credit score and likely scuttle the deal. Therefore, your best bet may be to sell your car, dirt bike, or other expensive items to raise cash quickly.

Try to Postpone the Close

Depending on the details in your purchase contract, it may be possible to delay the closing for several days or weeks to give you more time to raise money. Of course, the seller may decide not to grant your request or to take your request as a sign of bad faith. In either case, failing to close on time might cause the seller to back out, which might result in the loss of your earnest money or other deposits that you’ve already made.

Generally speaking, it’s difficult to get a mortgage unless you can show that you have sufficient capital reserves. Therefore, it’s unlikely that you’ll actually lack the funds needed to close. However, if you’re feeling nervous about meeting your obligations, it’s nice to know that there are a number of options available to ensure that you are able to do so. Don’t hesitate to reach out to a professional to ask the right questions beforehand.