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Down Payment - What You Need to Know About Using a Monetary Gift

by Melissa Thompson

Coming up with the money needed for a down payment on a house is not easy for many people.  Some are lucky enough to have someone (or several people) give them cash as a gift to go towards purchasing a home.  No doubt, that is a wonderful thing!  But there are guidelines that must be followed when using financial gifts for your down payment.

Using gifted funds to buy a home is not as simple as it sounds.  First, the money can’t come from just anyone.  Lenders want the money to come from a family member, such as a parent, grandparent or sibling.  You can also receive gifts from your spouse, domestic partner or significant other if you’re engaged to be married.

You may or may not be able to use gifted money for your entire down payment. It depends on the type of loan you are seeking.  If you are taking out a Conventional Loan, all your down payment can come from a gift if you are putting down 20 percent or more.  If you are putting down less than 20 percent, you must include some money of your own.  With FHA and VA loans, the entire amount can be gifted unless your credit score is less than 620, in which case you will have to come up with 3.5 percent of the down payment yourself. No matter what type of loan you apply for, you can only use gifted funds to purchase a primary residence or a second home.

In addition to there being restrictions about who can give you money, you will also have to prove that the money is a gift.  You will need to provide a gift letter that includes the name of the donor, their relationship to you, the date and amount of the gift and a statement that says the money is given with no expectation of repayment.  Both you and the donor must sign the letter. 

While it’s not necessary, it is a good idea to have the gift in your bank account prior to applying for a loan. That way when your lender looks through your bank statements for the previous few months, they will already see documentation of the gift.

If someone has given you money to go toward a down payment, Melissa Thompson can help you find your dream house.  Give her a call today at 901-729-9526!

Buying a Home Can Be Scary... Unless You Know the Facts

by Melissa Thompson

Some Highlights:

Many potential homebuyers believe that they need a 20% down payment and a 780 FICO® score to qualify to buy a home, which stops many of them from even trying! Here are some facts:

  • 40% of millennials who purchased homes this year have put down less than 10%.
  • 76.4% of loan applications were approved last month.
  • The average credit score of approved loans was 724 in September.

Let the experts at The Melissa Thompson Team help you decide if now is the right time for you to purchase a home! 901-729-9526 or [email protected].

By: KCM Crew

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Avoid a Major Mortgage Mistake by Increasing Your Down Payment

by Melissa Hayes Thompson


For prospective home buyers who have annuities, selling those future payments for a lump sum of money now can help them avoid getting locked into a mortgage black hole.

First-time home buyers often save money for years to collect enough for a down payment on their house. Once they have that 5 or 10 percent of the house value in the bank, they settle follow through by agreeing to 15 to 30 years of monthly payments on the mortgage, one that costs a fortune in interest.

What many don’t realize is that increasing a down payment for a $300,000 home by just 5 percent can reduce the mortgage by as much as $30,000. Putting money from an annuity sale toward a down payment offers significant long-term savings on your home – decreasing the amount paid for interest, loan principal and monthly payments.

Affording A Down Payment For Your Dream House

For most people, the greatest obstacle for getting a new home is the down payment. While mortgage payments might be easily figured in to a budget, putting together enough cash to buy takes time and hard work. Buyers generally pay a minimum of 3.5 percent (for federal housing loans) to 20 percent for down payments. For a $200,000 home, this means coming up with at least $40,000 to bring to closing. As people still recover from the recession, saving $40,000 while still keeping up with regular bills and living expenses seems like an impossible feat.

Unfortunately, paying less than 20 percent has other financial consequences. Lenders can (and almost always do) require you to purchase private mortgage insurance, which increases your monthly expenses and the total you are paying for your home. Additionally, they may restrict you to mortgages with high interest rates or even deny your application.

How Much Are You Actually Paying?

Let’s look at an example. You’ve found the home of your dreams for $300,000 and you’re ready to commit to a 30-year mortgage. If you can afford a down payment of $30,000 (which would be 10 percent of the cost), then you will need a mortgage of $270,000.   What kind of terms can you expect from a lender?   Banks look at a variety of factors to determine your loan eligibility and your credit-worthiness. They collect credit scores, employment history and the size of your down payment to determine your interest rate. According to The Washington Post, in 2014 the average interest rate was 3.99 percent for a fixed-rate loan. With a 10-percent down payment, an applicant with excellent credit would likely be able to qualify for this rate.

With the help of a mortgage calculator, you can find out how much this will cost. In this example, monthly payments are $1,287.47.   Here is a price chart based on a 30-year mortgage for a $300,000 home:

30-year mortgage at an interest rate of 3.99%

Mortgage (Down Payment)   Monthly Cost    Interest Paid
$285,000 ($15,000)   $1,299.37    $182,909

The Difference Annuity Cash Can Make

Using money from your annuity to bulk up your down payment can be a game-changer. The larger down payment reduces the necessary principal for the loan and decreases the home loan to value ratio. Because of this, a bank may qualify you for a lower interest rate.   For these examples, we used an interest rate of 3.625 percent. This chart shows how every increase in the down payment significantly decreases the total interest paid.

30-year mortgage at an interest rate of 3.625%

Mortgage (Down Payment)    Monthly Cost    Interest Paid
$285,000 ($15,000)    $1,299.37    $182,909
$270,000 ($30,000)    $1,231.34    $173,282
$255,000 ($45,000)    $1,162.93    $163,655
$240,000 ($60,000)    $1,094.52    $154,028

Now, if you are an annuity owner and you pull out $15,000 from selling annuity payments, you can increase your down payment by 5 percent, making a down payment of 15 percent. This reduces the mortgage total and the total interest is now $163,655.10. If we compare the interest on both mortgages, the difference between the old and new mortgages is nearly $30,000 — $193,487.47 – $163,655.10 = $29,832.37.   If you double your down payment to 20 percent, and kept the same interest rate, your savings will be closer to $40,000 — $193,487.47 – $154,028.32 = $39,459.15.

Eliminating the Waiting Period

Bottom line: If you own an annuity or structured settlement and want to own a home, don’t go through another decade of saving or sit around until the date your annuity payments are scheduled. And avoid the mistake of making a small down payment. By paying more up front, you reduce the home loan-to-value (LTV) ratio, which increases your eligibility for a mortgage and the likelihood of receiving approval for a better interest rate.

By selling annuity payments – using a resource that is already at your disposal – and putting the money toward your home, you can save tens of thousands in interest. Let your neighbor be the one with the 10-percent down payment, while you pay 20 percent and spend the next 30 years with $200 more in your pocket every month.

By Alanna Ritchie and Learn More About Annuities

Net Worth: A Homeowner’s is 36x Greater Than A Renter!

by Melissa Hayes Thompson

Net Worth: A Homeowner's is 36x Greater than a Renters! | Keeping Current Matters

Over the last six years, homeownership has lost some of its allure as a financial investment. As homeowners suffered through the housing bust, more and more began to question whether owning a home was truly a good way to build wealth.

Every three years the Federal Reserve conducts a Survey of Consumer Finances in which they collect data across all economic and social groups.

Some of the findings revealed in their report:

  • The average American family has a net worth of $81,200
  • Of that net worth, 61.4% ($49,856) of it is in home equity
  • A homeowner’s net worth is over 36 times greater than that of a renter
  • The average homeowner has a net worth of $194,500 while the average net worth of a renter is $5,400

Bottom Line

There are many reasons why owning a home makes sense, the Fed study shows that owning is still a great way for families to build wealth in America.

by 

Home Prices Continue to Rise

by Melissa Hayes Thompson

 

Home Prices Continue to Rise | Keeping Current Matters

“Broad-based Slowdown for Home Prices”

That is a headline you might have seen over the past weekend. And though it is true, we must understand the story behind the headline. Case Shiller reports on the year-over-year difference in home values. Their latest report revealed that the rate of appreciation has slowed – not that prices are falling!! Here is exactly what they said:

“The 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August.”

Prices are still up this month over last year’s values (4.9%) just not as much as they were last month (5.6%).

Home Prices are NOT Falling.

As a matter of fact, the latest Home Price Expectation Survey by Pulsenomics (a survey of a nationwide panel of over one hundred economists, real estate experts and investment & market strategists) showed that home prices will continue to appreciate for the next several years.

Home Price Expectation Survey Projected Prices | Keeping Current Matters

Bottom Line

Both first time buyers and families thinking of moving-up to their dream home can be assured that their investment in their new home makes sense.

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