fbpx
Hamilton for Heroes: Now Available to Help Even MORE Heroes!

Hamilton for Heroes: Now Available to Help Even MORE Heroes!

DID YOU KNOW?: The Hamilton for Heroes mortgage program is not only for active and retired Military and Veterans. These benefits are now available to active Police Officers, Firefighters and Emergency Medical Technicians (EMTs).

We want to thank our Heroes for helping to make our communities safer places to live! When our Heroes purchase or refinance a home, we will waive our lender fees (a value of $1,590).

  • First responders (firefighters, police officers and EMTs), active and retired military, veterans and surviving spouses are eligible
  • No limit to the number of times an eligible borrower can take advantage of this offer
  • A variety of Hamilton purchase and refinance loan programs are eligible for the offer in addition to VA loans
  • VA loans offer additional benefits such as no down payment and no mortgage insurance to military personnel
  • Dedicated service from a team of mortgage experts who understand the unique needs of our heroes
Please call or email me today to learn more about how we can work together to help our Heroes become homeowners! You can also apply online.
Gift of Equity Conventional Loan

Gift of Equity Conventional Loan

Most families will go above and beyond the call of duty to help each other out. But have you ever heard of a relative selling a home to another relative with no down payment? It happens; it happens all the time. The down payment comes in the form of a gift of equity, and it can be extremely beneficial to the buyer on a conventional loan.

Understanding the Gift of Equity

When a buyer owns a home that is worth a lot more than the mortgage balance, the difference is called equity. In the case of an retired person who has paid on a home since the Johnson administration, they may have only a few years left on their mortgage, thus they have a lot of equity on their home.

Example: if someone purchased a house 22 years ago with a 30-year mortgage, they would have only 8 years left on their home loan. If the home is currently worth $250,000 but the balance on the existing loan is only $62,000, then that would mean the owner has approximately $188,000 in equity. Not too shabby, eh?

But here’s where the gift of equity comes in: instead of asking a home buyer to come up with a 20% down payment, the owner could gift 20% of the home’s value to the buyer. This would allow the buyer to apply for a loan that is only 80% of the home’s value.

A Hypothetical

Here’s a hypothetical example:

John is 28-years-old and would like to buy a home. His parents have been paying on their home for 22 years. The balance of their mortgage is currently $62,000. The home is valued at $250,000. The parents would like to downsize and sell their home to John.

The parents offer to sell the home to John for $250,000. However, they also offer a gift of equity of $50,000. Therefore, John will need to contact his mortgage lender and apply for a loan of $200,000. This would allow his parents to receive a profit of $138,000 after giving away the equity to their dear, beloved son and paying off the old mortgage.

Saves the Borrower from PMI

One of the best advantages of the gift of equity is avoiding private mortgage insurance (PMI). Since a conventional loan charges PMI any time the borrower gets a mortgage over 80% of the home’s value, the gift of equity avoids this charge. Over the course of the loan, the lack of PMI could save the buyer thousands and thousands of dollars.

Who Pays Closing Costs?

As with any conventional mortgage, there will be closing costs involved. The home appraisal, recording the deed at the local county registrar’s office, property taxes, and several other items will all need to be paid at the closing attorney’s office when the deal is closed. For a conventional loan, guidelines state that the seller may pay up to 3% of the sales price in concessions towards closing costs.

Going back to our example of John and his parents, this would mean the parents could provide $7,500 towards the closing costs, reducing the amount of profit they receive from the transaction, but still allow them to assist John with the purchase of the property.

Potential Tax Issues

Warning: if you have a phobia of the IRS (and who doesn’t?), a gift of equity may result in some tax issues. The Feds put a limit on the amount of cash or equity that a person can give to another. For example, for the year 2019, the maximum amount of money or equity that can be given to a person is $15,000. Any amount that exceeds this limit will result in the giver of the gift being required to fill out certain forms with their annual tax return. It is best to consult with a local accountant that is familiar with gift and estate taxes in order to get the correct answer about tax consequences with a gift of equity.

True Value of the Home

Your prospective home will need to be appraised by an independent rep in order to determine the home’s actual value. For instance, in the above example, if the parents were trying to sell the home for $250,000 but the appraiser calculated the home’s worth at only $190,000, then the lender would not allow the transaction to go through. The sales price would have to be lowered along with the size of the equity gift.

Only Allowed with Family Members

According to conventional loan guidelines, there are some restrictions on the gift of equity transaction. Specifically, the seller of the home must be directly related to the buyer. The lender will want to see a transaction between a parent and child, or a grandparent and grandchild or an Aunt/Uncle to a nephew or niece. It is not common for a 6th cousin twice removed on the mother’s side to sell to a distant relative.

Documenting the Gift of Equity

Lenders may want to see a letter from the giver to the recipient. In a nutshell, the letter will need to describe the relationship between the two people, the amount of the gift of equity along with a statement that this is truly a gift and there is no expectation that the amount will be repaid. Your local lender can provide a template of the letter for you to use in order to satisfy this requirement.

Summing Up Gift of Equity Conventional Loan

Completing a gift of equity transaction will take planning and negotiation between both sides, but at the end of the day, it can be a huge benefit to the buyer. This is one of the few ways of buying a home without the need for a large cash payment, and without having to purchase private mortgage insurance. It is also a commendable way for a person to significantly help out one of their relatives without giving them a huge chunk of cash, while still taking advantage of the equity in their home.

Ready to apply for a loan? Click here to get started!

The Family Opportunity Mortgage: What Is It and Who Can Qualify

The Family Opportunity Mortgage: What Is It and Who Can Qualify

It feels like an American tradition for young people to rent the absolute cheapest place possible to save money for college expenses. At the same time, retired Americans are often ready to downsize their home or sell their property to keep up with basic living costs and medical bills. Thankfully, the Family Opportunity mortgage can assist both of these groups.

Basic Purpose of a Family Opportunity Mortgage

Family Opportunity mortgage gives qualified people a chance to buy a home for either their children that are in college, or their elderly relatives, without the requirement to live in the home themselves. Since many families are often scattered across the country, this type of loan provides an alternative to renting, and gives the purchaser of the property a valuable asset that can be later sold when their needs change.

Qualifications for College Students

  • The student will need to provide adequate documentation showing their enrollment in college
  • The student must live in the home as their primary residence for at least one year.
  • The home will need to be within a reasonable distance to the college or university.
  • The home must be far enough away from the parent’s current home to be considered a second home
  • The parents are not allowed to own any other vacation homes or second properties within the same area.
  • The parent(s) are the only ones considered for the mortgage. The child will not be part of the loan.

Qualifications for Elderly Parents

  • The elderly parents must either be in a situation where their income is not sufficient to be approved for a mortgage or they do not have the ability to work.
  • The elderly parents must live in the home as their main residence.
  • Unlike the qualifications for college students there is no requirement of distance between the home of the elderly parent(s) and the home of the adult child.
  • The elderly parents are allowed to be a co-borrower on the mortgage, but it is not necessary. The adult child will be the primary focus of the mortgage application.
  • The adult child may own a primary residence in addition to applying for the home of their elderly parent.

For parents who have the financial resources to purchase a home for their college-bound child or their senior aged parents, this is a fantastic Freddie Mac program that allows people to invest in a real estate asset, instead of pouring money away in a rental agreement.

Click here to apply today.

The Cost of Waiting

The Cost of Waiting

This spreadsheet breaks down the cost of waiting for the perfect interest rate, with 20% down on a $350,000 property. Essentially, when all the variables are added up, waiting one year will cost you $25,321, while waiting two years will cost you $52,111.

So what are you waiting for? If you’re waiting to save enough to put 20% down, I got news for you: you may not need 20% down. There are plenty of loans available where you can put anywhere from 5% to 1% down. Click here to apply today.

Mortgage Terms You Should Know

Mortgage Terms You Should Know

I know it seems like sometimes we mortgage specialists are speaking in a different language! I’m here to tell ya, I feel your pain (I wasn’t born a mortgage specialist). Here’s a list of frequently used terms that will hopefully narrow your learning curve when you’re looking for a new home and securing a mortgage.

Amortization

Amortization is the accounting of the pay-off of your mortgage over time though a fixed principal and interest payment.

Appraisal

Appraisals are written estimates of homes.  A qualified appraiser will visit the home and conduct the appraisal within certain uniform guidelines. The purpose is to show the bank how much the property is worth.

APR (Annual Percentage Rate)

APR is the true cost of borrowing money.  It calculates the interest paid over the life of the loan as well as the cost of securing the loan. Interest rate only shows the percentage of the principal a lender charges you. When comparing loan products, be sure to compare the APR (not just interest rate) as fees and closing costs can vary from lender to lender.

Clear to Close

A clear to close is when the underwriter has reviewed and signed off on the documentation required for you loan program.  Once the clear to close is issued, the fun part begins – processing to fund and close the loan. 

Closing Costs

Closing Costs for buyers include hard costs associated in securing a mortgage.  When you close on a loan, your closing costs will include the appraisal, origination points, and other fees. Closing costs are above and beyond your down payment and can run from 2-4% of the loan amount.

Closing Disclosure

The closing disclosure is a document covering the final details of your home mortgage.  It provides all of the accounting of your closing costs and your monthly payments. Federal law requires that your closing disclosure must be provided to you 3 days in advance of closing. This will give you time to compare it to your previous loan estimate and ask questions of your loan originator.

Debt to Income Ratio

Your debt to income ratio is one of the major qualifiers an underwriter uses to ascertain your eligibility for a loan program.  Simply, it is your gross income divided into your monthly consumer debt.  Consumer debt being your housing expense, car loans, student loans, minimum credit card payments etc….  Most loan programs will allow a 41-43$ debt to income ratio, but does vary quite a bit from loan program to loan program.  Your debt to income ratio is one of the largest qualifiers of how much home you can buy or get a mortgage for.

Equity

Equity is how much of the house you own vs the bank. As the market value of your house rises and you pay down the principal, your equity stake in your home rises. The amount of equity you have in your home will effect the loan programs that are available to you as well as your interest rate.

Escrows

Your lender, under most circumstances, are going to insist you fund and maintain an escrow account for your home insurance and property taxes.  Your lender will actually be responsible for making the payment—using your money, of course. Setting up an pre-funded escrow accounts and collecting a small amount every month for insurance and taxes ensure the bank the payments will be made in a timely manner. When you  pay off your mortgage, the money in the escrow account is yours.

Fannie Mae and Freddie Mac

Fannie Mae and Freddie Mac are government sponsored agencies created to provide affordable mortgages to low-middle income Americans.  They set the guidelines for the conforming loan to be easily bought and sold on the secondary market as well as guaranteeing the loans. Over 90% of the home loans in the US are backed by either Fannie Mae or Freddie Mac.

FICO Score

Your FICO score is your credit score used when securing a mortgage. Specifically your FICO score is a score designed by Fair Issacson Corporation and is a set of scores from the three major credit bureaus.  Your credit score impacts your interest rate more than any single criteria used in determining your eligibility for a loan.

Fixed Rate

A fixed rate mortgage is a mortgage rate that is fixed for the life of the loan, meaning your principal and interest payment never change over the life of the loan.  The most common mortgage product is the 30-year fixed mortgage rate.

Jumbo Loan

A jumbo loan or mortgage is a loan that is outside the lending limits of the Federal Housing Authority.  A jumbo mortgage is not eligible to be purchased, securitized or backed by FannieMae or FreddieMac. 

Loan Estimate

The loan estimate is a 3 page document that goes over the details of a loan.  It covers your loan amount, interest rate and closing costs. 

Loan Originator

The loan originator, loan officer or mortgage originator is your first point of contact in the home loan process.  They will facilitate your loan application and walk you to the closing table.  They are your point of customer service with your lender.

Loan to Value Ratio

Loan to value ratio is the amount of money you have put into the deal and how much you are financing.  If you are putting 20% that you have an 80% loan to value ratio.  Another big qualifying factor to fit you into a loan program.

Principal Payment

The amount of payment that is put towards the balance of the loan when you make a mortgage payment.  In the beginning your principal payment will be low and with each month that goes by a little more of your payment goes to principal.

Private Mortgage Insurance

Private Mortgage Insurance is an insurance premium you typically pay on loans that have less than a 20% down payment.  The private mortgage insurance covers any losses the bank should have if you default on your loan.

Processor

Once you meet with your loan officer and fill out the application and provide the necessary documentation, your loan will be turned over to a processor. The processors job is to package the loan and double check all necessary documentation is provided before it is submitted to underwriting.

Rate Lock

A rate lock is an agreement between you and your lender guaranteeing an interest rate on a specific loan product.  Interest rates on loans can fluctuate on a daily basis and until you lock your interest rate, your interest rate is whatever the market rate is for that day.

Title Insurance

Title insurance is an insurance policy that you purchase for your bank to cover any losses due to a title defect.  It is a one time up front fee when you secure a mortgage.

Variable Rate

Variable rate or adjustable rate mortgages are a mortgage product that is fixed for a certain period and than adjusts yearly based on a specific financial index.  Usually homeowners will go with an adjustable rate mortgage if the interest rate is lower than the 30-year fixed rate at that time.

Underwriting

Underwriting is one of the most critical pieces of the lending process.  An underwriter  assesses a borrower’s credit worthiness through reviewing credit, income, and assets. 

Send this to a friend