Mortgage Center

Family Loans

FHA now allows buyers to receive loans from direct family members for their down payment funds and/or closing costs.   A document is prepared for the loan file that spells out the terms of the repayment agreement and any monthly payment is included in the buyer’s debt ratio.    This may be an unsecured debt or secured on the subject property.

401K Loans

Buyers may utilize loans from their 401K’s and the monthly payment is not included in the buyer’s debt ratio.  

First Time Homebuyer Tax Credit!!  Did you know that this tax credit can indirectly help your buyers with a down payment?

Example: 

1.  Your buyer consults with their tax advisor and verifies they are qualified for the $7,500 first time homebuyer tax credit.

2.  Your buyer uses $5,000 of borrowed funds from a family member to purchase a home closing in November, ’08.

3.  They file their return in early January, ‘09 and owe $600 in taxes.  With the $7,500 tax credit, this means they will get a refund check for $6,900 soon after filing.

4   Upon receipt of the tax refund, they pay back the family member $5,000 and have $1,900 left over for blinds, decorating, or paying off debt.    

NOTES:

·         Buyers may also close a home in 2009, file their 2008 taxes immediately and use the $7,500 tax credit on their 2008 taxes, and repay a loan immediately.

·         Always refer your client to their tax advisor to verify their qualification for the tax credit prior to purchasing a home if they will be relying on this credit for repayment of a loan.

·         If your buyer is using the tax credit to repay a 401K loan rather than a personal/family member loan, they should check with their 401K fund manager to understand the repayment terms.  Many 401K loans do not allow early repayment.

·         Although the $7,500 is called a “tax credit”, there is a repayment schedule, so always advise your buyers to speak with their tax professional to understand the repayment terms.

·         Attached are FAQ’s regarding this tax credit

Neighborhood Stabilization Program (NSP)

Potential homebuyers may qualify for $15,000 in down payment and closing cost assistance to help buy an affordable foreclosed single family home, townhouse or condominium in the city of Phoenix.

The full amount of the loan is repaid to the city when the homebuyer sells the home or refinances. The homes must meet U.S. Department of Housing and Urban Development Housing Quality Standards and funds cannot be used for rehabilitation activities.

Families must be Federal Housing Administration creditworthy and complete the NSP-required eight-hour Homeownership Education and Credit Assessment counseling. The property must be maintained as the principal residence.

For more information about the program, call 602-262-6602 or visit phoenix.gov/nsd/fland.html. 

Homeownership Assistance Program Fact Sheet

Sweat Equity

Some new home builders will allow a buyer to use “sweat equity” as a portion of their down payment if they are short on funds to close.  This is work performed by the buyer, prior to closing, and the value of the work is documented in the lender’s file as down payment funds.  The work cannot be outside of the scope of the buyer’s skill level and the builder must agree to the process.  So in most cases, this type of work is limited to painting. 

Example: 

1.       Buyer purchases a $150,000 new build and down payment requirement is 3% or $4,500.

2.       Buyer & builder agree on “sweat equity” for interior painting.    Estimated cost by appraiser is $1,500.

3.       Painting is done prior to closing and buyer’s down payment requirement is reduced to $3,000

Gift Funds

As always, FHA allows for family members to gift your buyer funds up to the full down payment and all closing costs/prepaid items.   Please be aware that FHA is auditing gift funds carefully and the donor must sign a gift letter and document their source of funds.  If your buyer is using gift funds, the lender should discuss all documentation requirements directly with the donor at the time of application to avoid any difficulties later in the process.