Showing posts with label Down Payment. Show all posts
Showing posts with label Down Payment. Show all posts
Tuesday, July 22, 2008
Need Cash for a Home Closing? Consider a Gift
Coming up with a down payment or money for closing costs for a home loan can be a challenge these days. What extra money you were setting aside may all of sudden be going toward your gas tank or your grocery bill. To obtain your dream of homeownership, it may be time to accept that gift from Mom and Dad………
I saw a cartoon the other day that was pretty funny, but also pretty sad when you think about it. It showed a couple sitting across from a mortgage lender, and the caption read, “We’re here to apply for a tank of gas.” With increases in prices for just about everything, it gets more and more difficult to stash away a nest egg for a down payment. And pretty much every loan requires some part of down payment, even if you get a 100% financing loan. After all, you still are generally going to be required to put down some earnest money on your contract and in most cases, pay for an appraisal up front. You may have been trying to save it up on your own, but it may be time to accept some help from your family.
Most loan programs, be it Conventional, FHA, VA or Rural Housing, require the borrower to pay for something. In particular, FHA and Conventional home purchases want a minimum of 3% to come out of the borrower’s pocket. If you are doing a Conventional loan, you still can’t receive a gift for your 3% down payment, but you can use a gift to help with closing costs. However, FHA will allow your source of down payment to be a gift. So, if you find yourself a bit short on cash, you may need to ask someone to gift you the down payment or closing costs (or if your really lucky, and it’s allowed – both!).
All lenders are particular about just who can give you a gift for your down payment or closing costs. Pretty much across the board, the gift must be from a blood relative. You may have to prove that the gifter is a relative thru birth certificates, christening records, etc. Strange but true. Conventional loans will also allow an employer to give you a gift. But in any case, the most important factor is that whoever is giving the gift does not expect to be paid back. A certification to that effect will be required to be signed by the donor. Otherwise, it’s really a loan, now isn’t it? And as a responsible lender, we’re going to include that payment in your debt to income ratio, and we’ll probably want a bunch of documentation to prove the terms, etc. So, make sure it truly is a gift.
As of the date I’m writing this article, FHA will allow for down payment assistance programs, such as Nehemiah or Ameridream. Lenders view these products as “gifts” in a sense. They are basically seller concessions funneled through the down payment assistance channels. However, by the time this article is published, they may be null and void. It’s currently being reviewed and could go away. Or it may still be there, but just know it’s under review.
Lenders are very particular about how the gift funds reach the closing table. If you deposit the gift before closing, you have to show it coming out of the donor’s account and depositing into your account. It’s a lot of paper to collect. The easiest method is for Grandpa or your Great Aunt to just send a cashier’s check payable to you and your title company to the closing table. Smoother, quicker, simpler.
Gifts are a wonderful thing, and a gift of a down payment is a useful gift. After all, I think it’s safe to say that homeownership is one gift that keeps on giving, wouldn’t you?
Thursday, April 10, 2008
FHA and Down Payment Assistance: It’s Truly Gifted
Down Payment Assistance programs are designed to assist a home buyer with their 3% minimum investment on an FHA loan. It’s a nice gift to get!
If you qualify for an FHA loan to buy a home, traditionally you should be prepared to come up with 3% of final sales price in out of pocket funds to put down on the transaction. It’s a requirement. You can’t really get around it in on a home loan purchase. You can finance 97.75% of the loan amount, but you still have to have the remaining 1.25% of the aforementioned to put toward closing costs. Anyway you look at it, you need 3%.
Well, all is not forsaken. There is another way to come up with the 3% that doesn’t require hawking grandma’s pearl necklace or selling your 2nd car. There are down payment assistance programs out there to lend a helping hand. They can be considered a “gift”, and they are available for FHA loans that are single family and 1-4 unit dwellings. The two big names are AmeriDream, Inc. and The Nehemiah Program, and they provide these gift funds to qualified homebuyers.
How much in gift funds can be made available to you? 1% to 6% of the final contract sales price or a flat gift amount not to exceed 6% of the final contract sales price. And, in addition to the gift from AmeriDream or Nehemiah, the seller can contribute between 1% and 6% of final sales price toward the borrower’s closing costs. So, here’s the big secret, you can basically obtain an FHA loan with little or no down payment if you qualify.
How is this scenario possible? Well, it all depends on the deal you’re getting on the house. Basically, the seller is financing the down payment gift by not netting as much on the sale of the home. The seller or the lender also must pay the “down payment processing fee”, so your closing costs are going to go up $350-500. But, if you are buying a home below the lender’s appraised value, it can work!
Here’s an example. Say John and Susie Homebuyer have excellent credit but no cash to put down on a property. They are working with a great realtor who finds a home for sale that’s worth $120,000, but it’s generally acknowledged the seller will accept around $100,000 for it. The closing costs will run about $4500 (including the gift processing fee) and John and Suzie must invest $3,000 (3% of $100K) of their own money in the transaction per FHA guidelines. So, John and Suzie offer the seller $107,500. The seller agrees to participate in the Down Payment Assistance program and contribute $3,000 toward the buyer’s closing costs. This contribution becomes the “gift.” In addition, the seller agrees to pay $4500 in closing costs. The seller nets $100,000 from the transaction as anticipated, and the buyers pay the 3% down payment via a “gift” from AmeriDream or Nehemiah. The appraisal comes in comfortably above asking price and everyone’s happy.
The down payment assistance programs mentioned are large and respected community development programs, and they are a great deal for homeowners if they qualify and the seller agrees to contribute. With sellers willing to make sales concessions lately, it’s an excellent market for AmeriDream or Nehemiah. It’s critical that your realtor understand that you want to utilize these programs when you negotiate. Make sure they are aware of it and if need be, have your loan officer and realtor communicate with one another prior to house hunting. It’s also useful to have your lender prepare a good faith estimate for you prior to making an offer on a specific home so you can make sure all your numbers work and the offer is worded correctly with all the proper forms attached. And the good news is the programs still work with some of the competitive first time homebuyer programs out there like Tennessee Housing Development Agency with below market rates (but you don’t have to be a first time homebuyer).
So, who says you can’t get 100% financing anymore?
Let My Experience Work For You!
If you qualify for an FHA loan to buy a home, traditionally you should be prepared to come up with 3% of final sales price in out of pocket funds to put down on the transaction. It’s a requirement. You can’t really get around it in on a home loan purchase. You can finance 97.75% of the loan amount, but you still have to have the remaining 1.25% of the aforementioned to put toward closing costs. Anyway you look at it, you need 3%.
Well, all is not forsaken. There is another way to come up with the 3% that doesn’t require hawking grandma’s pearl necklace or selling your 2nd car. There are down payment assistance programs out there to lend a helping hand. They can be considered a “gift”, and they are available for FHA loans that are single family and 1-4 unit dwellings. The two big names are AmeriDream, Inc. and The Nehemiah Program, and they provide these gift funds to qualified homebuyers.
How much in gift funds can be made available to you? 1% to 6% of the final contract sales price or a flat gift amount not to exceed 6% of the final contract sales price. And, in addition to the gift from AmeriDream or Nehemiah, the seller can contribute between 1% and 6% of final sales price toward the borrower’s closing costs. So, here’s the big secret, you can basically obtain an FHA loan with little or no down payment if you qualify.
How is this scenario possible? Well, it all depends on the deal you’re getting on the house. Basically, the seller is financing the down payment gift by not netting as much on the sale of the home. The seller or the lender also must pay the “down payment processing fee”, so your closing costs are going to go up $350-500. But, if you are buying a home below the lender’s appraised value, it can work!
Here’s an example. Say John and Susie Homebuyer have excellent credit but no cash to put down on a property. They are working with a great realtor who finds a home for sale that’s worth $120,000, but it’s generally acknowledged the seller will accept around $100,000 for it. The closing costs will run about $4500 (including the gift processing fee) and John and Suzie must invest $3,000 (3% of $100K) of their own money in the transaction per FHA guidelines. So, John and Suzie offer the seller $107,500. The seller agrees to participate in the Down Payment Assistance program and contribute $3,000 toward the buyer’s closing costs. This contribution becomes the “gift.” In addition, the seller agrees to pay $4500 in closing costs. The seller nets $100,000 from the transaction as anticipated, and the buyers pay the 3% down payment via a “gift” from AmeriDream or Nehemiah. The appraisal comes in comfortably above asking price and everyone’s happy.
The down payment assistance programs mentioned are large and respected community development programs, and they are a great deal for homeowners if they qualify and the seller agrees to contribute. With sellers willing to make sales concessions lately, it’s an excellent market for AmeriDream or Nehemiah. It’s critical that your realtor understand that you want to utilize these programs when you negotiate. Make sure they are aware of it and if need be, have your loan officer and realtor communicate with one another prior to house hunting. It’s also useful to have your lender prepare a good faith estimate for you prior to making an offer on a specific home so you can make sure all your numbers work and the offer is worded correctly with all the proper forms attached. And the good news is the programs still work with some of the competitive first time homebuyer programs out there like Tennessee Housing Development Agency with below market rates (but you don’t have to be a first time homebuyer).
So, who says you can’t get 100% financing anymore?
Let My Experience Work For You!
Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call
direct: (865) 567-0113
Toll Free: 1-800-489-8910.
For more information visit her website at http://www.kristinmortgage.com/ Home Loans Plain Talk.
Truth and Lending, Mortgage Rates, home loan financing, credit reports, Home Loan Plain Talk, Mortgage Specialist, Kristin Abouelata
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