The market is getting much better for those who want to buy a new home. In this episode of Arizona Mortgage News Insider Update, Mike Goblet of United Mortgage and Financial Group talks about down payments. He explains all the different sources for down payment income. It does not just have to be your savings. Learn about all your options.
Matt O’Brien: Well, welcome back to another segment of Arizona Mortgage News Insider Update. We have our local resident expert here, Mike Goblet, of United Mortgage and Financial Group. Today, we have a topic that Mike’s going to talk more about on allowed sources for down payments relating to your money when you’re buying a home.
Mike Goblet: Hi Matt, how are you?
Matt: Excellent, how are you doing, Mike?
Mike: Good, good. Yeah, I’d thought it would be a good topic for today, for a number of reasons.
As everybody knows, we’re into a housing purchase mode right now and people wanting to capitalize on the lower values as they seem to be appreciating but how do you get in? What money can you use in order to afford a down payment?
You and I have talked in the past about what percentage to put whether it’s FHA at 3.5 or even some conventional loans at three percent or do you do 20 percent money. Not looking at those options, we covered that. Where do those funds come from, is also an interesting topic.
Matt: Makes sense. Enlighten us. What are our options here?
Mike: Well, obviously the one that most everybody looks and considers to be the natural choice is money coming from either their savings account that they saved up for all these years or whatever. Or, from a sale of an existing home or a home they just sold but not everybody has the luxury of having that money.
What are some other options that you might have in order to be able to still buy a house in this market? One of them is gift money from a relative. It can’t just be from a friend, it has to be from somebody who has a vested interested in that individual. It can’t just be given generally. On a FHA loan, actually, the whole money can be given, as a gift to that person, from a family member. There’s really no problem them.
On a conventional loan, you must have at least five percent of your own money to be putting down as the down payment, if your down payment is less than the 20 percent amount, the traditional 20 percent loan to value.
However if somebody is gifting you the whole 20 percent or more then that’s fine. It’s five percent if you’re down payment is less than 20 percent, five percent of your own money or all of it needs to be gifted on a conventional loan.
The one thing that is always part of a mortgage is the money cannot be borrowed. One of the questions asked in the declarations is, “Is any part of the down payment borrowed?” The answer is, “No.” What gets interesting is, what’s the definition of borrowed? What they mean by borrowed is, you borrowed it from a friend, you put it on a credit card, anything that’s technically an unsecured loan.
On the other hand, they don’t consider secured money to be borrowed money. What do I mean by secured? A home equity line, or taking out a second mortgage is considered secured funds. That’s allowable. If you take out a home equity line of credit, that money’s obviously going to go into your debt to income ratios and get counted against what you can afford.
Another source that many people don’t think about, or they do and they don’t know if they should or not, is taking money from a 401(k), or a retirement plan. Actually, you have to determine whether that’s a good use of those funds, or not.
The interesting part is you can use any, or all of your down payment from those funds. From a 401k or an investment plan, a repayment plan does not count against you in your debt to income. They consider it voluntary, so they don’t count that against your debt to income ratio, which gets into a little bit of play, depending upon your ratios that you’re bumping up against. Or that you want to use. Does that all make sense?
Matt: That all makes a lot of sense. I guess I never really thought of people might take a secured line of credit out for the down payment on top of the regular mortgage. That really seems like double trouble, but I guess…
Mike: Not necessarily. I mean somebody may own a home outright, and just looking not to dip into their savings account for a short time. Maybe there’s money coming to them a year from now, or something, through an inheritance.
Really, for many people, taking a home equity line of credit for a down payment is a very viable source. It always gets down to the individual situation. You don’t want to do it if it’s going to be a potential problem for you income wise, in a longer run. There are options available. Discussion before you decide is usually a very important thing to see which is in your best long term, financial advantage.
Matt: Interesting. Good topic. Well, Mike, if people have questions and want to get a hold of you, what’s the best way to reach out?
Mike: As always, I can be reached at our office number at 480‑503‑3533. Or I can be reached on my cell phone directly, happy to take your calls almost all the time, at 480‑220‑2329. My email address is firstname.lastname@example.org, our company initials of The United Mortgage Financial Grouping.
Matt: Excellent. Thanks for enlightening us. This is another always interesting segment, some of the options that you have, like on the secure loan on a house.
Mike: There’s a lot changing, and actually, there are new rules and regulations even coming in, in January of 2014 that still need a lot of explanation, clarification. I can tell you, absolutely, they will not make buying a home easier. They’re going to make the home harder, starting January 1, without even knowing what they’re going to be.
If there’s any thought process, “Do I wait till next year?” My suggestion would be, don’t if you have the option not to.
Matt: You heard it from Mike. Get while the getting’s good, because who knows what next year’s going to bring.
Mike: With mortgage rates, and the rules changes that are coming, absolutely.
Matt: Good deal. Thank you, Mike, appreciate it.
Mike: I look forward to talking to anybody, answering any questions. Have a good day.
Matt: You too, Mike. Bye‑bye.