WHO CAN GIVE A GIFT?
WHO CAN’T GIVE THE GIFT
DOCUMENTING THE GIFT
THE GIFT FOR DOWN PAYMENT BOTTOM LINE
Minneapolis St Paul, MN: When taking out the largest loan most people will ever have in their life, a home loan, your Mortgage Loan Officer is going to ask a lot of questions, and request a lot of supporting documents, like pay stubs, W2’s, tax returns, and your recent bank statements.
Providing all this documentation really should be pretty easy for most people, yet it also causes a lot of frustration. Most people don’t get pay checks handed to them anymore, just as many people don’t get banks statements mailed to the home either. So here starts some of the annoyance issues right away for some people, while others quickly and easily access the documents online.
Your lender wants actual pay stubs, and actual bank statements, like what would be mailed to the home. Many people send simple screen shots, which simply doesn’t work. Most online accounts let you print real statements and real pay stubs, you just need to look around to find them.
Generally, most mortgage loan programs only require your two most recent bank statements. We also need ALL the statements pages too. If the statement says “Page 1 of 3”, and the last page is just advertising, we still need it.
When the mortgage company looks at your bank statements, the most obvious thing they are looking for is do you have the money in the bank to cover your down payment and closing costs, also known as ‘cash-to-close.” Do you have it all today? What is your average balances?
If your last two months bank statements show $500 balances, but you need $10,000 for down payment, where is it coming from?
Any large, obviously non-payroll deposit needs to be documented. What is it, where did it come from? Is is a loan that needs to be paid back? Is it a gift? Is it your tax refund?
Large deposits is one of the biggest headaches for both the lender and the applicant, and depending on the answer, can be no big deal, require a little bit of paperwork to prove where it came from, or can actually be a deal killer.
A common problem is many people have large sums of cash at home, then deposit in the bank. As weird as it sound, that cash deposit is NOT an acceptable source of money for your down payment, and needs to be in the bank account at least 60-days before it can be considered usable money for your down payment.
Most lenders consider a large deposit any non-payroll deposit that is more than 50% of a applicant(s) monthly income for conventional loans, and more that 1% of the purchase price of the home for an FHA loan.
Yes, we care if you are bouncing checks. It shows how you manage money.
Let’s say your current rent is $1,000 a month, and you consistently bounce checks. Your potential new house payment is $1,400 a month. You can’t manage your account with rent at $1,000 a month, how are you going to be able to handle a $400 increase in your housing costs?
On the loan application, you are supposed to disclose all recurring debt. The reality is mortgage lenders generally just merge in the debt showing on your credit report. But a sharp eyed Underwriter may catch something on the bank statement and ask a question.
We don’t care about ATM withdrawals at the casino, and we don’t care about your purchase at the liquor store or Victoria’s Secret. We pretty much don’t care anything about your purchases.
Busy bank statements is my personal term for people who transfer around money from their various multiple accounts on a regular basis. This can lead to a lot of headaches in documentation. I just had a client, where on her bank statement, there was a large deposit. When I asked her where it came from, she said her savings account. Great, now send me the savings account statement. Once I saw the savings account, there was a large deposit there too. She said that deposit was from a 401k loan. OK, prove that too.
While she was able to prove and document everything, she also became very annoyed. I understand, but those are the rules. So if you know you will be buying a home in the next few months, it may be easier to put all the money in one account now to avoid any potential issues with Underwriting.
Minneapolis, MN: Student loan debt is at an all time high, and has been noted as a contributing factor to why may people have been unable to purchase a home, especially first time home buyers.
Recent changes to Fannie Mae and Freddie Mac guidelines have made it easier for some, but not all with student loan debt to still qualify for home mortgage loans.
Fannie Mae and Freddie Mac do not do home loans. Rather they buy loans from lenders after that fact. Both Fannie and Freddie have set underwriting guidelines that if lenders follow, makes the selling of loans to Fannie Mae and Freddie Mac much easier. While the number moves, at any given time, Fannie Mae and Freddie Mac control +/- about 60% of all home loans.
Many folks are confused when it comes to loan options. What type of loan, FHA Loan, VA Loan, or maybe a Conforming Conventional loan? What about fixed rates versus adjustable loans?
1. FHA charges a 1.75% upfront fee known as MIP (Mortgage Insurance Premium) (which is added to your loan balance)
2. FHA charges Monthly Mortgage Insurance of 1.35% annual (divided by 12 monthly payments) on a 30-yr loan with less than 10% down. To calculate it, take your loan amount times 1.35%, then divide by 12. This number is what is added to your loan payment
3. FHA Mortgage insurance can never be removed from the loan if you put down less than 10%. This is change from the old rules as of 2013
4. FHA technically allows a credit score down to 580 with just 3.5% down, but most lender will require at least a 620 or higher score
5. With FHA, there is no real difference in the interest rate from borrowers with a low 640 score to borrowers with a 800 score.
6. While rates can change, currently FHA rates are usually a little lower than conforming mortgage rates.
Consider Conforming Conventional:
1. No upfront Mortgage Insurance Premium charge
2. Monthly PMI is lower than FHA PMI. The cost does vary by credit score and down payment. The more down payment, the cheaper the PMI.
3. PMI can be avoided when the borrower puts 20% or more as down payment
4. Conventional PMI can be asked to be removed at 80% loan-to-value. This can be a combination of paying down the loan, or increased value. PMI will automatically go away once your reach 78% loan-to-value though payments alone. You must have made at least 24 mortgage payments before this can happen.
6. Most conventional lenders require a 660 minimum credit score., and a few will go to as low as a 620 score
7. Conforming conventional loan interest rates vary greatly by credit score in 20 point increments. Someone with a 660 credit score could be paying as much as 1/2% higher interest rate than someone with a 760 credit score.
Although this quick summary shows some of the key differences between FHA and Conventional financing, there could be other considerations which will make one loan product more beneficial to you than the other..
It can be overwhelming. That is why is is so important to deal with an experienced, and licensed mortgage professional – not just the unlicensed application taker at the bank or credit union. Sadly, around 80% of “Loan Officers” are mere application takers, with little to no qualifications to consult or properly advise a potential first time home buyer. Be sure to only work with an actual licensed loan officer.