Vail Daily column: How can a family member help another buy a home?
There are a lot of urban myths and rumors out there when it comes to getting your rich uncle (or other family member) to help you qualify for a mortgage loan to buy a home.
A family member who helps the primary borrower qualify for a mortgage but does not intend to occupy the home is known as a non-occupant co-borrower. Typically, parents are the ones, but I have also worked with siblings helping each other or, in one case, a client really did have a rich uncle to help him out.
When it comes to down payments, the rules generally require the occupying borrower to have some skin in the game. If the down payment is less than 20 percent, then at least 5 percent of the purchase price needs to come from the borrower’s own money.
Rich uncles are hard to come by sometimes
The definition of what is one’s own money is that the money must show in the borrower’s account for at least 60 days, or two account statement cycles. Anything more than that amount must be in the form of a gift, and the donor must be a family member or be able to show a longstanding relationship, such as a godparent or employer.
If your rich uncle is feeling really flush and the down payment is 20 percent or more, then all of it can be a gift.
If one takes a Federal Housing Administration mortgage (which have pros and cons), then 100 percent of the down payment can be a gift with as little as 3.5 percent down.
When we have a non-occupying co-borrower, we look at one combined bucket of income and expenses between all of the borrowers. If the combined income of the parties versus their combined expenses meets the requirements, then we’re usually good, as long as the source of the down payment can be sorted out.
In Eagle County, there are only a few condo complexes approved for FHA financing, which is a limiting factor for those who need both a lower-priced home and the flexibility of qualifying for an FHA loan.
However, FHA loans are available on a townhome or duplex. The difference between a townhome and a condo is that in a townhome or duplex, you own the land under the unit; in a condo, you own the airspace.
It is also important that the non-occupant co-borrower fully understand that if the borrower defaults, then the late payment will show up on the co-borrower’s credit report and that he is fully liable for the amount borrowed. If there is a foreclosure, then it will have an equal impact on both parties’ credit ratings, and the impact can be far-reaching. Borrowers, even non-occupant co-borrowers, who are involved in a default or foreclosure on a mortgage may be unable to get a new mortgage or even a refinance on their current home loans for up to four years.
The non-occupant borrower needs to evaluate the borrowers resources and ability to make the payments as well. For example, what would happen if the primary borrower were unemployed, or became ill for an extended period and could not work? Is the co-borrower able and willing to step up and help with the payments?
These arrangements can be a great gift to helping a family member get some traction on the road of homeownership, and be rewarding for both parties, if they work out. It can also be a very stressful experience if things go wrong.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His website is http://www.mtnmortgageguy.com.
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