Get Downpayment Funds from Parents – Pay Them Back with Your $8,000 Tax Credit
One of the things holding most Winter Haven first-time home buyers back from purchasing a home is the 3.5% downpayment requirement for FHA mortgages. Add closing costs to this total and many would be first-time home buyers – despite having jobs that can maintain monthly mortgage payments – simply can’t swing getting into a home at all.
With DPAs now a thing of the past, another source of downpayment funds for first time home buyers a home is a LOAN from an immediate family member. Although it cannot be a requirement of the loan, qualified first time home buyers can borrow the money from their parents and repay it with the $8,000 tax credit.
FHA Guidelines
FHA permits family members to lend 100% of the full amount of cash required to get into a home, including the down payment. There is no additional “cash investment” required from the borrowers.
Here are the details:
1. The loan can include some or all of the down payment, closing costs and pre-paids.
2. Funds must come from immediate family members only: meaning parent, grandparent, son, stepson, daughter, stepdaughter, legally adopted child, or foster child.
3. The loan can be unsecured or secured against the subject property. The lien on the property must be the family member lending the funds – not a third party.
4. Family members may borrow the funds, for instance, from their financial institution. The institution can place a lien on the parents’ property, but not the borrowers’ (subject) property.
5. The source of funds that the family member is using for the loan cannot come directly or indirectly from anybody with a financial interest in the transaction.
6. Payments, if applicable must be included in the debt ratio.
7. No balloon payments can be due within 5 years.
8. The CLTV can exceed 100% of the sales price (or value) of the property, but there can be no cash back to the borrower beyond a refund of earnest money deposit.
9. The first mortgage loan amount calculations are not affected.
10. A copy of the documentation is required before approval, and the executed paperwork must remain with the loan file.
This is for informational purposes only. Refer to Mortgagee Letter 96-58, and HUD Handbook 4155.1 REV-5, 1-13.E. for full details)
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I hope you found this post useful! As always, if you or anyone you know is in need of a local Florida mortgage broker, I’m your guy. Call me at 863-604-3019 or apply online for your Florida mortgage. We’ll keep you posted and let you know when it’s time to pull the trigger!
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I haven’t heard of this. In this time of great financial needs, anyone looking to buy a home needs all the help they can get and this is just one of those things which people looking to buy their first home can take advantage of.
Terry, I agree! It’s still wise to be sure you can really “afford” the monthly costs (all of them) associated with a home purchase. That said, this option for downpayment funds is a great one!
Thanks Kevin. If you set aside a portion of your budget for “all the monthly costs” and you can take advantage of this option, then you’ll end up with extra cash and that goes a long way during these trying times.
It’s funny though, 20 years or so from now, we would call today the “good old days”. LOL