Financial Assistance Problems

James Woodard
Sun, 11 Dec 2016 21:00:00 -0800
Lifestyle

An increasing number of homebuyers, particularly first-time buyers, accept financial assistance from a friend or relative. This is primarily used for the down payment.

This arrangement can work out well for the buyer. But there are potential problems that should be addressed, as noted in a report by realtor.com.
Updated: Mon Dec 12, 2016

An increasing number of homebuyers, particularly first-time buyers, accept financial assistance from a friend or relative. This is primarily used for the down payment.

This arrangement can work out well for the buyer. But there are potential problems that should be addressed, as noted in a report by realtor.com.

"First off, the down payment must be considered a gift. If it's considered a loan, the lender must then factor that into the mortgage approval amount, and buyers may then qualify for less than they may have needed to.

"Buyers will need a gift letter from the person or persons who gave them the money. The person who gifted the buyer the money will need to state on paper that he or she does not plan on asking for the money back in return and that it is, indeed, a gift."

The report pointed out the importance of the letter as part of the arrangement.

"The gift letter is very serious," says Casey Fleming, mortgage adviser and author of "The Loan Guide: How to Get the Best Possible Mortgage."

"While it is doubtful that a lender would ever audit a file after the fact to see if the recipient is paying the donor back, if the transaction goes bad, you might very well find yourself with a subpoena in your hand."

"Remember, you cannot lie on a mortgage application. It's a felony. The gifter may also be required to provide bank statements, possibly even up to two months of statements from their account."

Q: Are mortgage rates still rising?

A: Yes, in fact those rates are now at a new high for this year. Freddie Mac released the results of its Primary Mortgage Market Survey showing average fixed mortgage rates moving higher for the sixth consecutive week.

The 30-year fixed-rate mortgage averaged 4.13 percent with an average 0.5 point for the week ending December 8 — up from last week when it averaged 4.08 percent. A year ago at this time, the 30-year FRM averaged 3.95 percent.

The 15-year FRM this week averaged 3.36 percent with an average 0.5 point — up from last week when it averaged 3.34 percent. A year ago at this time, the 15-year FRM averaged 3.19 percent.

Q: Is the housing marker getting stronger?

A: It seems to be. Freddie Mac released its Multi-Indicator Market Index(r) (MiMi(r)), showing the majority of the top 100 largest housing markets across the country improving steadily, while helping to produce the best year in homes sales in a decade.

"Forty-one of the 50 states plus the District of Columbia have MiMi values within range of their benchmark averages, with Utah (100.4), Colorado (97.8), Hawaii (97), Idaho (96.7) and North Dakota and Oregon at (95.8) ranking in the top five with scores closest to their historical benchmark index levels of 100.

"Seventy-six of the 100 metro areas have MiMi values within range of their benchmark averages, with Honolulu, HI (99.8), Nashville, TN (100.2), Ogden, UT (99.3), Dallas, TX (99.2) and Provo, UT (101), ranking in the top five with scores closest to their historical benchmark index levels of 100."

Q: Are sales of previously owned homes increasing?

A: Yes. In fact, existing-home sales ascended in October for the second straight month and eclipsed June's cyclical sales peak to become the highest annualized pace in nearly a decade.

All major regions saw monthly and annual sales increases in October, according to the National Association of Realtors.

"Total existing-home sales , which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 2.0 percent to a seasonally adjusted annual rate of 5.60 million in October from an upwardly revised 5.49 million in September.

"October's sales pace is 5.9 percent above a year ago (5.29 million) and surpasses June's pace (5.57 million) as the highest since February 2007 (5.79 million)."