Home Purchase Mortgage Calculators
Mortgage Program Calculators
Giving your relative money for a down payment to buy a home that would you live in and then assume the mortgage from her is technically feasible but highly challenging and there are several issues you should be aware of.
1) Providing a gift to a relative for a down payment. You can provide a gift to your relative to make a down payment on a home but mortgage lenders have relatively strict guidelines over how the down payment gift is made and typically request certain documentation regarding the gift. Lenders want to ensure that the down payment gift is truly a gift, and not a loan that your relative would be required to pay back. We review Using a Gift for a Down Payment on FREEandCLEAR and we recommend that yo fully understand the lender's guidelines on down payment gifts before transferring any money to your
2) Borrower qualification requirements. Unless you apply for the mortgage as co-applicants, your relative must be able to qualify for the mortgage on her own based on her credit score, debt-to-income ratio and other borrower qualification requirements. For example, your relative must be able to afford the monthly mortgage payment based on her own monthly income and debt. Depending on whether your relative can qualify for the mortgage on her own, you may want to consider the HomeReady Mortgage Program which enables lenders to factor in additional sources of income, such as income from relatives, to determine a borrower's ability to qualify for a mortgage. We provide a comprehensive overview of the HomeReady Mortgage Program on FREEandCLEAR.
3) Owner-occupied versus non-owner occupied mortgages. If your relative buys the home but you live in the property then she would be required to obtain a non-owner occupied mortgage. Non-owner occupied mortgages have different borrower qualification requirements and are more expensive than owner-occupied mortgages, when the property being mortgaged is the borrower's primary residence. Non-owner occupied mortgages typically require borrowers to make a larger down payment (20% - 30% of the property purchase price) and pay a higher interest rate than owner-occupied mortgages. We provide a thorough explanation of the differences between non-owner occupied and owner-occupied mortgages on FREEandCLEAR. Given the stricter borrower qualification requirements and higher interest rate for non-owner occupied mortgages, it may make sense for your relative to live in the home for two-to-three months after she buys it. You could also live in the home during this time period but with an owner-occupied mortgage your relative obtains a more affordable interest rate and the down payment required by the lender may be lower.
4) Assumable mortgages. Assumable mortgages are very uncommon, aside from FHA and VA mortgages. With all assumable mortgages, including FHA and VA loans, the borrower is required to obtain lender approval before the mortgage is assumed by a new borrower. In most cases the new borrower that is assuming the mortgage must qualify for the mortgage based on the lender's borrower qualification requirements. If the new borrower does not qualify for the mortgage, then the lender denies the request to assume the mortgage. Additionally, in cases where the new borrower qualifies to assume the mortgage the lender may increase the interest rate if rates have increased since the original borrower obtained the loan. In short, obtaining an assumable mortgage can be highly challenging and then actually having a new borrower assume the mortgage from the original borrower can be also be very difficult and expensive.
5) Mortgage waiting periods. You mentioned that you are required to wait three years following a short sale before you apply for a mortgage because you were delinquent on your payments prior to the short sale. In general this information is correct but the waiting period may be shorter if you experienced an extenuating circumstance such as a job loss, medical illness or divorce that contributed to the short sale. We provide a comprehensive overview of the mortgage waiting periods following negative credit events such as a short sale on FREEandCLEAR that you should review. Please note that the lender will require that you document the extenuating circumstance that contributed to the short sale but you may be able to qualify for a mortgage today, depending on your situation.