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The Down Payment Assistance Trick Most Don't Know - YouTube
Channel: Win The House You Love
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Kyle here with winthehouseyoulove.com.
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Today, we're talking about a
down payment assitance trick
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that most people don't know.
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So I've done a lot of FHA loans
and I didn't know about this
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until a couple of weeks ago.
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So we're going to talk about how you
can use down payment assistance in
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a nontraditional way to avoid a lot
of the costs and fees that come with
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regular down payment assistance.
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So first of all, down payment assistance
is exactly what it sounds like it's
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assistance to help with your down payment
, and a down payment usually can be a big
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struggle in entering into home ownership.
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Now down payment assistance is normally
given by a local housing authority.
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All right.
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And that local housing
authority is basically going
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to give you a grant or a loan.
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But the problem with that is, is there's
normally some costs, extra costs involved.
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So even though you're getting
assistance with the down payment,
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there's added fees to it, you
also normally have a higher rate.
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So with, let's say you get
an FHA loan right now for 3%.
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With a down payment assistance
program that might be closer to 4.5%.
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So you're paying a lot of extra money
to get that down payment assistance.
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And also you maybe have a certain
period of years that you have
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to remain in the property.
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Some down payment assistance requires
you to be in home and not sell it
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or refinance for 5 to 10 years.
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So that can really prevent you from
saving a lot of money if interest
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rates drop down even further.
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So when you don't have access to
a down payment assistance program
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you might be looking at something
as a gift from a family member.
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And most people are really familiar
with getting a gift for closing costs.
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But here's the thing that a lot
of people don't know: you can
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actually get a loan for your down
payment, from a family member.
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Okay.
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Most people don't know this.
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If you talk to a loan officer,
they probably don't think that
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this is a thing that you can do.
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So it can be unsecured or secured against
the property as a second mortgage.
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So, effectively what a family member
can do for you is they can give you a
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second mortgage for your down payment.
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This is huge because this is down
payment assistance, but it doesn't
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have all of the downsides of a
regular down payment assistance.
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So you don't have to pay any extra fees
to a family member in this, unless they're
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going to charge that to you, which would
kind of suck, but, no extra fees, no
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increased rate on that, and you don't
have a limit on when you can refinance.
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So that a family member gets
to decide what the terms of
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this new loan looks like.
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So they could choose to charge interest.
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They could choose to not charge interest.
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They could choose, you know,
maybe just one upfront cost really
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depends on what they want to do.
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Right.
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They could also secure it
against your current home.
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So when you sell the property,
they would get that money back.
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If it's unsecured, then you don't have
to pay that money back when you sell the
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property, you just have to pay it back
according to the terms that they give you.
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So this is huge because you don't have to
go through normal down payment assistance
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as long as you have a family member,
who's willing to give you that loan.
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Also something interesting, and you'll
learn through as you're exploring these
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different types of loans, you know,
the whole mortgage world is, is weird.
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It has a bunch of random rules about
things, FHA has this thing called MRI.
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It's the minimum required investment.
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FHA basically says, hey, no matter
how, the money that you bring to the
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closing table, no matter how much or
how little it is, you always have to
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have 3.5% minimum of the downpayment
sitting in your bank account.
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Okay.
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So even if your total cash to close
is lower than 3.5%, you still have
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to have that money sitting in your
bank account so that they can see you
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have a minimum required investment.
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It's a dumb rule.
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But, this is actually satisfied by a loan
from a family member which is really huge.
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So, what's really strange about this.
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Actually I'll get to that in a second.
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Something else to keep in
mind is it has to be included
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in the debt to income ratio.
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So this loan with your family member,
let's say it costs you, you know,
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you worked out, so you're paying
back your family member a hundred
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dollars per month, then that a
hundred dollars per month needs to
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be included in your debt to income
ratio to calculate when you qualify.
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And your loan officer
will do this for you.
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But if you are trying to calculate your
debt to income on your own, just keep
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that in mind, you'll need to put that
loan amount monthly payment in there.
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Also it cannot exceed
100% loan to value ratio.
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So the loan to value ratio is
just a hundred percent minus
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your down payment percentage
equals your loan to value ratio.
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Okay.
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So it's just the opposite of
how much you're putting down.
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So basically what this is saying here
is your family member can provide a loan
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for the down payment, but they can not
provide a loan for the closing costs.
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Effectively, a family member could
give you a loan for the down payment
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and then a gift for the closing costs.
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The difference is a loan
obviously gets paid back and
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a gift does not get paid back.
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Also a family member is
allowed to borrow that money.
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Okay.
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So, you know, maybe you have somebody
who, you know, maybe they don't have
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the money right now, but they're
willing to go borrow it on your behalf
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so they can borrow the money then
loan you the funds to have access to
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that money as well, which is kind of
an interesting thing that you can do.
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It's helpful if you have a family
member who's saying, Hey, I'm not
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willing to you know, go take this
money directly out of my account.
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Maybe want to loan it from another source.
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Now we're going to talk about who
qualifies as a family member because not
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everyone qualifies as a family member.
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But first, let's have a calm moment here.
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So when you're looking at buying
a house, getting the down payment,
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can feel really overwhelming because
there's all of these costs involved.
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You have the down payment plus all the
closing costs and it can start to feel
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like things are adding up quite a bit.
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And maybe you don't have these funds
saved up in your bank account right now.
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And that's okay.
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All right.
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It's all right to slow down.
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It's all right to take this moment and
say, Hey, we're just trying to piece
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together: what does everything cost here?
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All right.
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So if you're in that spot, it's okay.
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You can calm down and relax and
take things a step at a time.
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One word of caution that I would have for
you is to not rush into this too quickly.
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A lot of times what happens
is when people want to kind
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of dip their toe in the water.
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They don't realize that the
water they dip their toe in is
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actually this like surging stream.
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And it's easy to get caught up in the
real estate world where you're starting to
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say, Hey, I'm starting to explore things.
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And then all of a sudden we're going
out and we're seeing homes and we're
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writing offers and things move a lot
quicker than we expected them to.
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So if you're in that spot, don't feel
like you have to move forward with things.
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You can take a step
back, you can slow down.
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And if you're in the spot where you're
feeling like, Hey, we don't have a
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lot of money in our account right
now and you know, buying a house
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just seems like a big stretch for us.
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Then don't move forward
with buying a house.
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Buying a home is not going to
fix your financial problems.
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It's not going to fix the emotional
problems you have, and it's
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not going to fix the relational
problems that you have as well.
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All right.
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A home is just an extra thing that we do.
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It doesn't solve problems in itself.
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Okay.
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So let's talk about who counts as
family because not everybody does.
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So this family definition counts
for if you're getting a gift
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or a loan from a family member,
this is how FHA defines family.
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So it can be a child, a
parent, or a grandparent.
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Wow I put chills.
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A child is a son step son, daughter, or
stepdaughter, a parent or grandparent
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includes a step parent grandparent,
a stepparent step grandparent
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or foster parent or grandparent.
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Okay.
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It could be a spouse or domestic
partner, legally adopted child,
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foster child, brother, step brother,
sister, step sister, aunts, or
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uncle, and a son, daughter, father,
mother, brother or sister in law.
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That's what counts as family
notice, there's no cousins,
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there's no removed whatever.
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It's only these people count towards
providing a gift or providing a loan.
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Alright, so this is a really great
strategy that is going to help you come
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up with a down payment without using
traditional down payment assistance if
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you need some help with your down payment,
you can use a loan from a family member.
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Talk to your loan officer about that.
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But if you want to learn 10 more tips
and tricks on FHA loan down payments,
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go ahead and click on the video over
here and that's gonna help you out.
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