Tag Archives: Conventional Loan

Can I get a “gift” from my parents for a down payment?

Yes, you can! This is the classic case where the parents help out the kids buy their first home. It is allowed under Fannie Mae, Freddie Mac, and FHA mortgage guidelines.

The rules vary by program, but generally, the rules are it has to be a true gift and no expectation of repayment. It can’t be a loan to be paid back.
There will be a letter stating that it is a gift from the parents (or any other family member) to the borrowers and it is signed by all parties.

There is also a set of documentation that needs to accompany the gift to prove that it was the parents to give, it was deposited into the borrower’s account, and what the balance is after the gift was deposited. FHA also requires that the parents show what account it came from.

There is also a provision in the FHA mortgage guidelines that allow a family member’s “gift of equity” to purchase a home that the parents own but want to sell to the kids.

For Fannie Mae and Freddie Mac, the rules are slightly different. You can get a gift for part of the down payment but you would need a minimum of 5% of your own funds into the deal. Here is how this could work. You have 5% saved for a down payment and want to go with a conventional loan. You can get a gift for 15% from a family member and that would give you a total down payment of 20%. Having 20% down allows you to get a conventional loan without having to purchase private mortgage insurance. This is the exact deal that my wife and I got when we purchased our first home. Thanks Mom and Dad!

Anyway, if you think you will need a gift for a down payment, its best to come see your local mortgage professional ahead of time. There is a little extra work and time required to put this together. You also want to make sure your family members are aware and able to do the gift when you need it.

If you need further assistance with a gift for down payment, contact me at 208-955-1234 ext. 30.

You can have perfect credit and still get turned down for a mortgage.

It doesn’t seem like someone with excellent credit, solid employment, and documentable assets and income would get turned down for a loan, but it can happen.

One of the fundamentals of writing a solid mortgage is to ensure that the property is acceptable and will be an asset in the future. After all, you wouldn’t want to pay for something for 15,20 or 30 years and find out that its not worth anything.

There are many things that can affect the value of a residential property and zoning is one of them. You can be in an area that is zoned for residential use but right next door is a factory zoned for industrial use. Even if there are other properties that have sold for a comparable amount, the neighboring property can bring your value down or create uncertainty of the future use of that property. Think about your home town and how it has changed over the last 30 years. Get the picture?

One of the items required for a conventional residential mortgage is an appraisal. The duty of the appraiser is not simply to assign a value to a residential property, but also to make comments on the neighborhood and note if the area’s use is stable or adverse.

A recent appraisal came into my office and it is in an area that the local government would like to see more industrial uses in the future. In fact, they publish a future use map for all to see before they purchase any property in the area. The appraiser marked the area as being in transition and residential use was interim. How long until the area becomes fully industrial is unknown, in fact it might never become devoid of homes, commercial and farms that are currently there, but the city has indicated that any new industrial uses in their impact area would go there.

This is a huge risk for any future buyers. You could buy a home in that area and years later, when you go to sell, you find your potential buyers unwilling or unable to get financing on your property.

In the end, our company had to pass on writing this loan. It was simply a risk that we were unwilling to take or let a client take.

What is the best loan for someone who has excellent credit and a large down payment?

This might seem silly to ask, but I do see people getting the wrong mortgage for their situation simply because someone told them about a special program.

If you have a decent down payment, say 20% or more, have excellent credit, and you have documentable income and assets, then you want a plain vanilla, Conventional Loan.  These loans are also called Fannie Mae Loans or Freddie Mac loans.

I have seen people seeking a VA loan because they are a Veteran and they feel they need to use their VA benefit.  VA loans are ideal for the Veteran who doesn’t have a down payment, as they can go up to 100% loan to value.  The down side is that VA charges the Veteran a funding fee that ranges from 2.35%-3.3% on top of the mortgage balance.

The same applied to FHA or USDA loans.  Yes, they are good for some people, ie first time home buyers, someone who needs help with the down payment, or some other situation.  FHA loans have Mortgage Insurance Premiums that are added to the loan balance and have a month fee as well.

Don’t get fooled by the difference in rates.  Right now the Conventional loans are about .25% higher than VA, FHA, or USDA loans.  They don’t have funding fees or Mortgage Insurance Premiums added to the loan balance or payment.

Any ethical mortgage loan officer will look at all options and make a recommendation based on your situation.  Every body’s mortgage needs are unique.

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