Buying As Primary Residence & Converting To Investment Property – Considerations

BUYERS BUSTED FOR “PRETEND” OWNER-OCCUPANCY We once had a buyer using vastly superior “owner-occupied” or “primary residence financing” to buy a home – only to see his financing fall through at the 11th hour. Our underwriter had checked a database called MERS (Mortgage Electronic Registration System) and found out that the borrower had just refinanced […]Read More

Optimal Down Payment? Less Than You Think

All too many homebuyers mistakenly believe that they need to put down as much as humanly possible for several reasons: (1) they want to minimize their housing payment; (2) they want to minimize their debt load; and (3) they want to make their offers appear stronger. We, however, often advise buyers to put down less […]Read More

Rent Credits For Down Payment Funds

This is a quick reminder that renters can use “rent credits” towards their down payment. The entire down payment can be in the form of a rent credit in fact. The amount of the credit is the cumulative difference between the “Market Rent” and the “Actual Rent” paid. For example, if the market rent for […]Read More

Gift of Equity Instead of Down Payment – When Family Sells to Family

Gift Of Equity This is a reminder that sellers can “Gift Equity” as all or a portion of a down payment. If the entire down payment is a “Gift of Equity,” it needs to comprise at least 20% of the purchase price. If the Gift of Equity is less than 20% of the purchase price, […]Read More

10% Down With No PMI; Overrated?

Most agents and buyers know that Private Mortgage Insurance (PMI) is usually necessary when a buyer puts less than 20% down. What most people don’t know is that almost every lender offers a “10% down loan with NO PMI,” even though loan officers often market these products as “unique offerings.” 10% down with no PMI […]Read More

Down Payment Assistance – Requires Seller Credit for “No Cash Out of Pocket” Closing

I blogged Thursday about Down Payment Assistant Programs and about the Chenoa program in particular. We received a lot of positive responses but I still sensed some confusion in regard to one of the points I made. THE NEED FOR SELLER CREDITS If buyers have very little cash on hand, they will need a seller […]Read More

3 Reasons to Make Smaller Down Payments

We recently had a borrower with ample income and about $70,000 of liquid assets try to squeeze into a $600,000 home with 10% down. She wanted to put as much down as possible to minimize her housing payment. We instead talked her into putting 3.5% down and using FHA financing for the three reasons discussed […]Read More

Unison – 10% Down Payment Assistance For Small Share of Appreciation

Unison is a company that contributes funds towards a purchase in exchange for a percentage of a property’s appreciation. Again – Unison only takes a share of a property’s appreciation, and not a share of the “total equity” like many people mistakenly believe. This type of down payment assistance is excellent for: Buyers with tight […]Read More

3 Ways to Avoid PMI When LTV Is Over 80%

There are 3 ways to avoid monthly Private Mortgage Insurance (PMI) when a down payment is less than 20%: (1) Combo Loans; (2) Lump Sum or Single Payment PMI; and (3) Lender Paid PMI. Combo Loans employ 2nd mortgages to cover the loan-to-value portion that is over 80% (eliminating the need for PMI). We can […]Read More

Consult Lender Before Moving Money; Paper-Trailing Assets

We recently had a Realtor remind his client to talk to us before moving any money around, and it was a very pleasant surprise. Most Realtors and borrowers do not realize how stringent lenders have to be when paper-trailing all assets used for reserves, down payment funds, and closing costs. Today’s blog is a quick […]Read More

Funds To Close; Every Dollar Accounted For; Don’t Move Funds!

One of our biggest hold-ups at closing is accounting for every dollar used for down payment and closing costs (funds to close). Lenders are now required to paper-trail every dollar used. This means every large deposit has to be “sourced” and every check to escrow has to come from a verified account (both withdrawals and […]Read More

Converting “Cash” to Down Payment Funds – Gifts

We frequently have borrowers with substantial sums of cash that they want to use for a down payment. They cannot simply deposit the funds in escrow or into their bank accounts b/c lenders will want to know where the money came from. Lenders prohibit the use of un-sourced and unseasoned funds in all transactions. Buyers […]Read More

“Gift Of Equity” For a Down Payment Instead of Cash

This is a reminder that sellers can “Gift Equity” as a portion of a down payment. With conventional financing, a “Gift of Equity” can comprise the entire down payment if it is 20% or more of the purchase price. If the Gift of Equity is less than 20% of the purchase price, buyers must still […]Read More

Put Less Down and Pay Off Car or Consumer Debts

We had a borrower last week who was getting a gift of $40,000 to buy a home with FHA financing. FHA of course required a much smaller down payment but the borrower wanted to qualify for a higher purchase price by putting down more than what was required. The borrower, however, also had a $15,000 […]Read More

Post-Close HELOC to Reclaim Liquidity; 90% CLTV

We often encourage buyers to put down 20% or more not just to avoid mortgage insurance, but also to make their offers much stronger and to allow us to close in 14 days (80/10/10 financing with two loans requires 21 days). Buyers are often reluctant to deplete their liquidity, borrow from 401ks, or access gift […]Read More

CHDAP: Buying $400,000 Home with $2,000 Out of Pocket; 1/2% Down

We just approved two buyers this week for our CHDAP (California Homebuyers Down Payment Assistance Program), and it reminded us to blog about the program. CHDAP allows buyers to purchase a home with only 1/2% of the purchase price for a down payment. CHDAP Buyers can purchase a $400,000 home with as little as $2,000 […]Read More

Realtor Commissions Credited for Closing Costs & Down Payment (Gift)

Realtors can credit their commissions toward recurring and non-recurring closing costs. This is well-known. What many Realtors do not know is that they can “gift” all or a portion of their commission towards a down payment as long as the buyer is a relative. Almost anybody can be a relative, however. Jay Voorhees Founder/Broker | […]Read More

Using Lender Credits For Closing Costs; Just Need Down Payment

We had a borrower come to us over the weekend who wanted to buy a $400,000 home with FHA financing, and she had exactly $14,000 for a down payment (just enough). She had no money for closing costs which will be about $10,000 for non-recurring and recurring costs (including impounds). The solution in this competitive […]Read More

Down Payments Affect Interest Rates; Credit Score Big Factor

Down Payment size or percentage does NOT affect the interest rate for FHA loans. But, Down Payment size does affect the interest rate for Conventional loans. If a borrower’s credit score is above 740, the effect is small. If a down payment size is less than 25% (20% vs 25%), the rate might be 1/8 […]Read More

Homebuyer’s Assistance Programs Not That Great

We have buyers frequently looking to access “Homebuyer’s Assistance” or “Down Payment Assistance” programs offered by various cities and other non-profit entities. These are programs where a portion of an FHA down payment (usually 3%) is either gifted or loaned to the buyer at a very low rate. We often discourage these programs because the […]Read More

1/2% Down Program w/ CHF 3% “Grant” Program; Pros/Cons

The “CHF Grant” Program is a First Time Buyer program tied to FHA financing. Through this program, buyers get a grant (not a loan) equal to 3% of the purchase price. Hence, if the seller is paying the closing costs with a large seller-credit, buyers can get into a home with only 1/2 of a […]Read More

Down Payment “Gifts” and Gift Tax Issues? Banks Don’t Report Gifts

We often have concerns from donors about the “Gift Tax” ramifications from giving a gift of funds to relative for a down payment. This is b/c banks require donors to sign a “gift letter” that states that the donors are “gifting” the funds, and that the funds are not to be repaid. We are not […]Read More

Gift Funds – A Few “Rules” to Note

Gift Funds – a Few Rules of Thumb For FHA Loans – An entire down payment can be a gift. FHA Gifts must be “sourced;” this means that the donor or “gifter” must prove the ability to gift with bank statements that verify sufficient available funds for the gift. For Conventional Loans – The entire […]Read More

Fed “Stimulus”; Gift Funds for Down Payment

The Fed announced their $600 billion stimulus yesterday. They plan to buy up $600 billion in bonds to further reduce rates and to flood the economy with more dollars. Reactions were mixed yesterday (rates bumped up a bit) b/c this action could prove inflationary, and inflation fears push rates upward. GIFT FUNDS can be used […]Read More

Gift Funds – Reminders

When a buyer is receiving “gift funds” from a relative for a purchase, it is imperative that the funds go straight to the Title or Escrow Company. We beat this dead horse often, but we continue to get buyers who have received gift funds into their own checking accounts, creating “paper-trail” nightmares. GIFT FACTOIDS: (1) […]Read More

Do NOT Let Your Buyers Deposit “Cash to Close”

We have an FHA deal right now that is a complete mess b/c our buyer’s realtor encouraged her to “quickly gather all of the cash she needed to close.” This was OK advice, but he should have implored her NOT to deposit ANY of the funds she “gathered.” This particular buyer borrowed money from her […]Read More

401K or IRA for Down Payment?

Homebuyers who have not owned a home in 2 years can use $10,000 of their 401K for a Down Payment without PENALTY, but they still have to pay the deferred income taxes against that money. A better plan for those intent on tapping into a 401K is to borrow from it. They pay the interest […]Read More

20% Down vs 3.5% Down?

If a buyer has consumer debt, it is usually better to make a smaller down payment. We again had a buyer this week who insisted on putting 20% down even though she had a tremendous amount of consumer debt. We convinced her to instead put down 3.5% and get an FHA loan, and then use […]Read More

Refi “Boom” Back On; Down Payment Assistance Not Always Best

There are all kinds of Down Payment Assistance Programs available. A few of them are excellent, but many are so disadvantageous that we steer people away from them. An example of an excellent program is San Francisco’s HERO program. HERO offers $20,000 silent seconds (with no payments) that get waved altogether after a fixed period […]Read More

Options With Less Than 20% Down; No More 2nds; MI Is Best if Borrower Is Very Strong

If a buyer has less than 20% of the Purchase Price for a Down Payment, there are far fewer options than there were two years ago. Concurrently funded 2nd mortgages and/or equity lines no longer exist. The only options now are Mortgage Insurance or FHA Financing. For well qualified borrowers, Mortgage Insurance is still the […]Read More

The Market for Mortgages Creeps Back; Use Down Payment to Pay Off Consumer

We had several clients come to us in recent weeks with $30,000 to $40,000 saved up for down payments, but they also had substantial quantities of consumer debt (car loans and credit cards). It is always our advice to use most of the down payment to pay off the consumer debts, and then get FHA […]Read More

Economy Weak; Co-Signers Allowed

Rates are holding as more negative economic news surfaces that is offsetting some of the positive stock market news. Industrial Production and Capacity Utilization numbers, for example, were both down, further indicating that a recovery is a long way away. We are finding it difficult to get some of our first time homebuyers approved for […]Read More