The Down Payment Assistance Trick Most Don't Know

The Down Payment Assistance Trick Most Don't Know

Kyle here with Today, we're talking about a
down payment assitance trick that most people don't know. So I've done a lot of FHA loans
and I didn't know about this until a couple of weeks ago. So we're going to talk about how you
can use down payment assistance in a nontraditional way to avoid a lot
of the costs and fees that come with regular down payment assistance. So first of all, down payment assistance
is exactly what it sounds like it's assistance to help with your down payment
, and a down payment usually can be a big struggle in entering into home ownership. Now down payment assistance is normally
given by a local housing authority.

All right. And that local housing
authority is basically going to give you a grant or a loan. But the problem with that is, is there's
normally some costs, extra costs involved. So even though you're getting
assistance with the down payment, there's added fees to it, you
also normally have a higher rate. So with, let's say you get
an FHA loan right now for 3%. With a down payment assistance
program that might be closer to 4.5%. So you're paying a lot of extra money
to get that down payment assistance. And also you maybe have a certain
period of years that you have to remain in the property. Some down payment assistance requires
you to be in home and not sell it or refinance for 5 to 10 years. So that can really prevent you from
saving a lot of money if interest rates drop down even further. So when you don't have access to
a down payment assistance program you might be looking at something
as a gift from a family member. And most people are really familiar
with getting a gift for closing costs.

But here's the thing that a lot
of people don't know: you can actually get a loan for your down
payment, from a family member. Okay. Most people don't know this. If you talk to a loan officer,
they probably don't think that this is a thing that you can do. So it can be unsecured or secured against
the property as a second mortgage. So, effectively what a family member
can do for you is they can give you a second mortgage for your down payment. This is huge because this is down
payment assistance, but it doesn't have all of the downsides of a
regular down payment assistance. So you don't have to pay any extra fees
to a family member in this, unless they're going to charge that to you, which would
kind of suck, but, no extra fees, no increased rate on that, and you don't
have a limit on when you can refinance.

So that a family member gets
to decide what the terms of this new loan looks like. So they could choose to charge interest. They could choose to not charge interest. They could choose, you know,
maybe just one upfront cost really depends on what they want to do. Right. They could also secure it
against your current home. So when you sell the property,
they would get that money back. If it's unsecured, then you don't have
to pay that money back when you sell the property, you just have to pay it back
according to the terms that they give you. So this is huge because you don't have to
go through normal down payment assistance as long as you have a family member,
who's willing to give you that loan. Also something interesting, and you'll
learn through as you're exploring these different types of loans, you know,
the whole mortgage world is, is weird.

It has a bunch of random rules about
things, FHA has this thing called MRI. It's the minimum required investment. FHA basically says, hey, no matter
how, the money that you bring to the closing table, no matter how much or
how little it is, you always have to have 3.5% minimum of the downpayment
sitting in your bank account. Okay. So even if your total cash to close
is lower than 3.5%, you still have to have that money sitting in your
bank account so that they can see you have a minimum required investment. It's a dumb rule. But, this is actually satisfied by a loan
from a family member which is really huge. So, what's really strange about this. Actually I'll get to that in a second. Something else to keep in
mind is it has to be included in the debt to income ratio.

So this loan with your family member,
let's say it costs you, you know, you worked out, so you're paying
back your family member a hundred dollars per month, then that a
hundred dollars per month needs to be included in your debt to income
ratio to calculate when you qualify. And your loan officer
will do this for you. But if you are trying to calculate your
debt to income on your own, just keep that in mind, you'll need to put that
loan amount monthly payment in there. Also it cannot exceed
100% loan to value ratio. So the loan to value ratio is
just a hundred percent minus your down payment percentage
equals your loan to value ratio. Okay. So it's just the opposite of
how much you're putting down.

kyle seagraves

So basically what this is saying here
is your family member can provide a loan for the down payment, but they can not
provide a loan for the closing costs. Effectively, a family member could
give you a loan for the down payment and then a gift for the closing costs. The difference is a loan
obviously gets paid back and a gift does not get paid back. Also a family member is
allowed to borrow that money. Okay. So, you know, maybe you have somebody
who, you know, maybe they don't have the money right now, but they're
willing to go borrow it on your behalf so they can borrow the money then
loan you the funds to have access to that money as well, which is kind of
an interesting thing that you can do. It's helpful if you have a family
member who's saying, Hey, I'm not willing to you know, go take this
money directly out of my account.

Maybe want to loan it from another source. Now we're going to talk about who
qualifies as a family member because not everyone qualifies as a family member. But first, let's have a calm moment here. So when you're looking at buying
a house, getting the down payment, can feel really overwhelming because
there's all of these costs involved. You have the down payment plus all the
closing costs and it can start to feel like things are adding up quite a bit. And maybe you don't have these funds
saved up in your bank account right now. And that's okay. All right. It's all right to slow down.

It's all right to take this moment and
say, Hey, we're just trying to piece together: what does everything cost here? All right. So if you're in that spot, it's okay. You can calm down and relax and
take things a step at a time. One word of caution that I would have for
you is to not rush into this too quickly. A lot of times what happens
is when people want to kind of dip their toe in the water. They don't realize that the
water they dip their toe in is actually this like surging stream. And it's easy to get caught up in the
real estate world where you're starting to say, Hey, I'm starting to explore things. And then all of a sudden we're going
out and we're seeing homes and we're writing offers and things move a lot
quicker than we expected them to. So if you're in that spot, don't feel
like you have to move forward with things. You can take a step
back, you can slow down. And if you're in the spot where you're
feeling like, Hey, we don't have a lot of money in our account right
now and you know, buying a house just seems like a big stretch for us.

Then don't move forward
with buying a house. Buying a home is not going to
fix your financial problems. It's not going to fix the emotional
problems you have, and it's not going to fix the relational
problems that you have as well. All right. A home is just an extra thing that we do. It doesn't solve problems in itself. Okay. So let's talk about who counts as
family because not everybody does. So this family definition counts
for if you're getting a gift or a loan from a family member,
this is how FHA defines family.

So it can be a child, a
parent, or a grandparent. Wow I put chills. A child is a son step son, daughter, or
stepdaughter, a parent or grandparent includes a step parent grandparent,
a stepparent step grandparent or foster parent or grandparent. Okay. It could be a spouse or domestic
partner, legally adopted child, foster child, brother, step brother,
sister, step sister, aunts, or uncle, and a son, daughter, father,
mother, brother or sister in law.

That's what counts as family
notice, there's no cousins, there's no removed whatever. It's only these people count towards
providing a gift or providing a loan. Alright, so this is a really great
strategy that is going to help you come up with a down payment without using
traditional down payment assistance if you need some help with your down payment,
you can use a loan from a family member. Talk to your loan officer about that. But if you want to learn 10 more tips
and tricks on FHA loan down payments, go ahead and click on the video over
here and that's gonna help you out..

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