Kyle here with winthehouseyoulove.com.
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.
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.