There is a little-known mortgage program that could provide the vehicle for the right person to get into a home. If a person sells their home to another for less than the fair market value, the difference in the appraised value and the sales price is considered a gift of equity for the buyer.
FHA requires that borrowers receive gifts of equity only from family members transferring title to the borrower.
An appraisal is required to determine the value of the home. The sales price is subtracted from the appraised value to determine the equity to be gifted. If a home appraises for $300,000 when the owner will sell it for $250,000, the gift is $50,000.
The gift is applied to the down payment. In this example, the borrower would have to qualify for a $250,000 mortgage which would require private mortgage insurance because a 20% down payment on a $300,000 home would be $60,000. If the buyer had an additional $10,000 in cash to put down, the PMI would not be required, and the monthly payments would be lower.
The seller would need to provide a gift letter stating the amount of the gift, the date the gift, and that no repayment is expected or required. It also needs to have the donor’s name, address, phone, email and relationship to the buyer. In addition, the settlement statement will need to show the gift being credited from the seller to the buyer. The lender may require additional documentation.
Beginning in 2018, the annual gift tax exemption is increased to $15,000 per person per year and lifetime exemption to $5.6 million. The fact that the $50,000 exceeds the individual amount doesn’t mean there will necessarily be any gift tax due now. The seller should consult their tax professional.
It may be natural for first-time buyers to be unsure of the process of buying a home because they haven’t been through it before but even repeat buyers need to know changes that have taken place since the financial housing crisis.
The steps in the home buying process are predictable and generally follow the same pattern. It certainly makes the move stay on schedule when you know all the different things that must be done to get to the closing.
- In the initial interview with your real estate professional, you share the things you want and need in a home, discuss available financing and learn how your agent can represent you in the transaction.
- The pre-approval step is essential for anyone using a mortgage to purchase a home to assure that they’re looking at the right price of homes and so they’ll know what they can qualify for and what the interest will be.
- Even with lower than normal inventory, it is difficult to stay up-to-date with the homes currently for sale and the new one just coming on the market. Technology has simplified this process, but the buyer needs to implement them.
- Showings can be accommodated online through virtual tours, drive-bys and finally, a personal tour through the home. Your real estate professional can work with you to see all the homes in the market through REALTORS®, builders or for sale by owners.
- When a home has been identified, an offer is written and negotiation over price, condition and terms takes place.
- A contract is a fully negotiated, written agreement.
- Escrow is opened to deposit the earnest money from the buyer as a sign they’re acting in good faith. The title search is also started so that clear title can be conveyed from the seller to the buyer and that the lender will have a valid lien on the property.
- 88% of home sales involve a mortgage. The lender will require an appraisal to be sure that the home can serve as partial collateral for the loan. If the buyer has been pre-approved, the verifications will be updated to be certain that they’re still valid. The entire loan package when completed, is sent to underwriting for final approval.
- When the contract is completed, at the same time the title search and mortgage approval is being worked on, the buyer will arrange for any inspections that were called for in the contract.
- After all contingencies have been completed, the transaction goes to settlement where all of the necessary papers are signed, and the balance of the buyer’s money is paid. This is where title transfers from the seller to the buyer.
- Possession occurs according to the sales contract.
One of the responsibilities of your real estate professional is to make sure that things are done in a timely manner so that the transaction will close according to the agreement on time and without unforeseen or unnecessary problems.
Even if you’re not ready to buy or start looking yet, you need to be assembling your team of professionals. Let us know and we’ll send you our recommendations, so you can read about them on their websites.
If you have any questions, call us at (510) 908-9021; we’re happy to help. Informed buyers lead to satisfied homeowners and that is better for everyone involved.
Talking about real estate and having clients who want to sell, and having clients who want to buy…..seems rather tame and trivial compared to all who have lost their lives, lost their homes (rentals or owned), lost everything in the most recent fires all over CA. I hope many of you have or will be donating to the fire victims through such agencies as the Red Cross.
Thanksgiving is upon us, and not only do I need to express my gratitude for everything I have physically, verbally, and mentally, I hope you have a good Thanksgiving, no matter if you have peanut butter sandwiches, a full turkey dinner, or take out from McDonald’s.
Even just a few moments of silence can give me a more well-rounded outlook and attitude. I wish that for those of you who read this blog.
Alameda Real Estate this Week
incl 2 Active Contingent, 1 Back on Market, 6 Price Changes
That’s a wrap! I’ll write another post 2 weeks from today!
Happy, happy Thanksgiving! best, m
my ‘for fun’ blog…Boomer-chick-musings.com
It’s been said that if you can find a home that has most of what you want, you should go ahead and purchase it. Many first-time buyers are using everything they have for a down payment and closing costs and would have to “live” with the less than perfect home until they can save the money to make the changes.
The FHA 203(k) mortgage allows a borrower to purchase a home and provides additional funds for improvements to be made. These types of renovations can include kitchen and bathroom remodels, flooring, plumbing, heating and air conditioning systems, additions and other things.
The benefit to the buyer is that they have the opportunity to consider a home that needs repairs and might have been unacceptable without a program like this. Being a FHA loan, a minimal down payment is required, fair interest rates and generous qualifying requirements.
The 203(k) Streamline can be used for cosmetic improvements, appliances and minor remodeling up to $35,000 in cost.
As you can imagine, this is a specialized program and not all lenders choose to make 203(k) loans. They usually take longer to process and getting firm bids on the work to be done will be required. It is important to find out how much experience a lender has with this particular type of loan.
It will also be required that you work with a 203(k) consultant in addition to the mortgage officer.
For more information, go to Hud.gov. FNMA has a similar conventional loan program called HomeStyle Mortgage. Your real estate professional will be able to help with recommendations. Call me at (510) 908-9021.
IMHO I think Alameda pushes all of my buttons considering the above. Access to transportation, to me, means not using a car as solo driver (and yes, I do drive solo). And I’ve ridden my bike to the Alameda ferry (to SF). But I love most of the transformations that our town has made since 1973 when Carl and I showed up here, renting our first house (a studio apartment) at 2105 Central Ave. It seemed like we were in heaven! But not much has changed on the exterior, other than it got a new foundation years ago..and it was sitting on bricks when he rented it!
Alameda Real Estate this Week
(incl 3 active/contingent, and 1 price change)
Have a fun weekend…but maybe play games inside, or stream some movies, or go to our magnificent theatre and watch a movie. And then head over to Tuckers for some ice cream treats!
But the smoke is awful. As I was driving to our BayEast Association of Realtors’ chapter (near Mariner Square) I saw folks that were walking and wearing masks, and some people driving cars were wearing masks! Not good.
And give please pause to think good thoughts for and about those who lost everything in Paradise, CA.
Boomer-Chick-Musings.com my for fun blog!
Finding the right home is still the biggest challenge buyers are faced with in today’s market as is shown in the latest Confidence Index Survey. Assuming the buyers find the “right” home with determination, perseverance and the help of a real estate professional, 88% of all transactions last year required financing to get the buyer’s address on the home. 93% of first-time buyers needed financing.
Pre-approval is an essential step that needs to be handled before buyers begin searching for a home. The benefits to the buyer fall into the category of confidence.
PRE-APPROVAL GIVES YOU CONFIDENCE
- Knowing the amount you can borrow
the mortgage amount decreases as interest rates rise
- Looking at the right priced homes
price, size, amenities, location
- Comparing and identifying the best loan
rate, term, type
- Uncover issues early that could affect the most favorable loan terms
time to cure possible problems
- Bargaining power to negotiate with the seller and possibly, competing buyers
price, terms, & timing
- Settlement can occur sooner after contact is accepted
verifications have already been made
Items Needed for Pre-Approval
- Photo ID
- Two months current pay stubs
- Last two year’s W2s
- Complete copies of checking and savings statements for last three months
- Copies of statements for IRAs, 401k, savings, CDs, money market funds, etc.
- Employment history for last two years with addresses and contacts
- Proof of commissioned or bonus income
- Residency history for last two years with addresses and contacts
- Assets for down payment, closing costs, and reserves; must provide paper trail
- If self-employed, last two years tax returns, current profit and loss statement and balance sheet; copy of partnership/corporate tax returns for last two years if owning more than 25% of company
- FHA requires driver’s license and social security card
- VA requires original certificate of eligibility and DD214
- Other things may be required such as previous bankruptcy, divorce decree
Contact us at (510) 908-9021 or marilynschu if you’d like a recommendation of a trusted mortgage professional.
If you live in the Bay Area, you should have some inkling that the Seller‘s Market is not as good as it has been the past 3-4 years. However, there can be loads of reasons for selling:
-Making the big bucks’ as long as you don’t buy something that costs ‘big bucks.’
-You can’t wait until the neighbors make the big bucks…you need to stay ahead of them. Be a leader, not a follower, but make wise decisions.
-Outgrown the house? Sure… but it may be worthwhile to think ahead a few years…will you grow back into it? Would putting an addition help to add space? How about an ADU (accessory dwelling unit) that you can rent out?
-Feeling financially stressed? Maybe talk to your accountant or financial advisor BEFORE you sign on the dotted line to list that property. There are numerous things to consider…and speak to a Realtor that knows what’s going on in the ‘hood, and hopefully you can trust.
-Outta there due to deferred maintenance? Maybe take it one step at a time…get a pest and property inspection done…and prioritize those findings.
Alameda Real Estate this Week
(I’ve kinda regrouped and minimized the categories)
(active incl 3 active/contingent, 1 bom (back on market), 7 price changes)
Pending 50 (total)
And that’s a wrap…contact me if you have ??? about this market and wha’s goin’ on in A-TOWN!
As storybooks go, the character is introduced, they meet their love interest, a villain thwarts their intentions, true love overcomes, they marry and live happily ever-after. It’s a very familiar formula.
Similarly, there is a formula that couples follow in real life. They go to college, get a good job, rent a home, fall in love, get married and buy a starter home. They start a family, move into a larger home, save for their children’s education, start planning for their retirement and if they live within their means, they invest their surplus funds.
An alternative to this might be to start investing in rental homes early in their adult life before their standard of living becomes so expensive that they don’t feel like they have the money to purchase rentals. There are infinite possibilities but let’s say a single person, after getting a good job, buys a small three or four-bedroom home with an owner-occupied, minimum down payment. They move into the home and possibly, rent out the bedrooms to other singles who need a place to live.
At some point, they decide to buy another home to live in with a minimum down payment and either rent out their bedroom in the first home or rent the whole home to a tenant. And they repeat the process again with the second home.
This could continue until they acquired several homes. Let’s say, that in the meantime, they have met their love interest, decide to get married and together, they buy a starter home for them to live in.
This concept advances the investment in rental homes from the latter part of their lives to the early part of their life. The early investment gives them more time for appreciation and wealth accumulation. A simple principle of investing is that sooner is better than later. By delaying gratification to own your “dream home” early, a person may be able to accumulate more net worth in the same period of time.
Buying a property initially as owner-occupied permits a lower down payment of 3.5% compared to a typical down payment for non-owner-occupied properties is 20%. By using more borrowed funds, leverage can increase the yield on the investment.
It may be too late for some people reading this article to adopt this strategy but if they have kids in college, it may be something for them to consider.
Boomer-chick-musings.com my ‘for fun’ blog – check it out!
I attended a class in Maine many years ago. Rushworth Kidder taught the class. His book is ‘How Good People Make Tough Choices’ is an excellent read. I wanted to hear him and I wanted to learn.
This past Wednesday and Thursday, I was part of a group of Realtors at a leadership meeting in Santa Cruz. I shared the above quote when I was called upon (out of the clear blue) by the CEO to share what I thought this group was about.
To my knowledge, nobody had heard of him or the quote. People were writing it down. It’s the best definition of ‘ethics’ that I’ve ever come across. And that’s the standard that I work towards, in my business and my life. That particular week-long class has made me aware of what’s what, and what’s not – especially in these challenging times.
Alameda Real Estate this Week
That’s a wrap for now!
Have a fun Halloween! I’ll be sitting on my front step telling the kids if they want a treat they need to do a trick for me.