Mortgages

The Right Way To Give Or Receive A Gift For a Downpayment

When a home buyer is given cash as a gift for a down payment to purchase a home, there is a right and a wrong way to receive that money.

The right way includes:

• Completing an acceptable gift letter
• Documenting the withdrawal of the gift money with receipts
• Documenting the deposit of the gift money with receipts

The wrong way? Completely ignore the rules that mortgage lenders clearly lay out for you.

Mortgage lenders usually look closely at gifts because they want to be sure that the “gift” is not really just a loan-in-disguise. If it’s a loan, the total dollar amount will need to be counted against the home’s total loan-to-value, and higher loan-to-values typically increase the lender’s risk, so it’s something they try to avoid when they can.

If the money really is a gift, a signed and dated gift letter should accompany the home loan application. Typically, a gift letter will include the name of donor, the name of the recipient, the relationship between the two parties, the amount of the gift, the address of the property for which the gift is to be used to pay for, the fact that no repayment is required or expected, and an assurance that the person making the gift or the source of funds is not in nay way party or beneficiary to the transaction, e.g. not the broker, seller, agent, loan officer, builder and so on. In most cases the person giving the gift will be required to document where the money came from, such as a bank account or a brokerage account.

For additional evidence that the gift is legitimate, the recipient should make sure that deposited funds are not commingled at the bank. If the gift is for $12,000, for example, then the recipient’s bank deposit receipt should indicate that a $12,000 deposit was made.

There may be legal and tax liabilities when gifting funds between family members so if you’re unsure about how donating or receiving a gift may impact you, call or email me. If I can’t answer your question, I can certainly refer you to somebody that can.

South Haven and Bangor Homes - Should you buy mortgage points?

This is part 2 in a series about understanding your mortgage. Read more: Understanding Mortgage Points

You can also “buy” points to improve the interest rate you get on your mortgage.  If you have the available cash on hand, and have long-term plans to stay in the house, you may think about “buying down” points to qualify for a better interest rate.  Though you’ll have to bring more money to closing, you’ll enjoy lower monthly payments over the life of your mortgage.

Generally, for each point prepaid, the interest rate on your mortgage will drop about a quarter (.25) of a percent (unfortunately it’s not a one-percent-for-one-percent deal!)  Additionally, lenders usually set the number of points that you can prepay (so you can’t just pay a little more for a 0% nterest rate).

When to Buy Down Points

When should you prepay points?  It depends.  If you have the extra cash on hand, there might be a better way to invest it.  Sit down and do the math before you decide (I used to be a teacher, so I’m happy to help with this).  Divide the total cost of the points by the savings in each monthly payment.  That answer is the number of payments it takes to break even.  If the number of months to payback is longer than you plan to have the mortgage, another loan option should be considered.

If you don’t have cash available, don’t think about borrowing it.  Doing so will increase your loan amount and total costs because you’ll be paying interest on that for the life of the loan as well.

If you’re looking to buy real estate in South Haven or Bangor, you really need to understand all of the costs of your mortgage.  I’d be happy to meet with you to explain!

South Haven and Bangor Michigan - Understanding mortage points

You need to understand ALL of the costs of your mortgage!

When you’re getting ready to purchase a South Haven or Bangor home, it’s really important that you understand all the different costs that are involved with your home purchase.  Today we’ll talk about what it means to pay “points” on your mortgage.

Points are simply fees paid to receive a home mortgage. Consider them your “cost” to get a mortgage.  Each point is 1% of the total loan amount.  So, one point (one percent) of a $80,000 loan is $800.

The two most common types of “points” are:  Loan origination points and Discount points.

Loan Origination Points are the fees that your lenders will charge you to obtain your mortgage. Similar to interest rates, points (or sometimes even fractions of points) will often vary between lenders.  Some lenders don’t even charge points, so take the time to shop around.

Discount Points are the fees that lenders charge for the interest rate you’ll pay on a mortgage.  Once again, one point equals one percent of the total loan amount.  The numbers of points charged changes with the time, location, lender and the local mortgage and investment market.

More discount points may be charged if you have had credit problems. Sometimes, lenders may also only qualify you for a higher mortgage rate than advertised.  Those with poor credit may find they have to pay anywhere from 2 to 4 times the points as those with good credit.  That’s why keeping a good credit history and comparing all the costs of a mortgage is so important.

Read more: Should you buy mortgage points?

If you think you’re ready to purchase your South Haven or Bangor home, you really owe it to yourself (and your bank account) to really understand your mortgage. I’d be happy to meet with you and answer any questions you may have. Feel free to call me at (269) 580-2259, or email me at tframe (at)kalvan.com