FHA Mortgages, Loans From Family
With Down Payment Assistance for FHA Mortgages becoming a bit more difficult to find. Another source of funds for down payment to buy a home is a LOAN from an immediate family member. That is right. This a little known FHA underwriting guideline that is allowed. However, not all Mortgage Lenders offer it. Even though it can not be a requirement of the loan, qualified first time homebuyers can obtain the money from their parents and pay it back upon receipt of their income tax rebate.
FHA Mortgage Guideline
FHA will allow family members to loan 100% of the overall amount of money required to get into a house, including the down payment. There is no supplementary “cash investment” required from the borrowers.
The loan may include some or all of the down payment, closing costs (points, appraisal, title, escrow, etc) and pre-paids expenses (real estate tax, hazard insurance, pre-paid interest).
Immediate family only, meaning parent, grandparent, son, stepson, daughter, stepdaughter, lawfully adopted child, or foster child.
The loan can be unsecured or secured against the subject property. The lien on the house should be the family member lending the down payment, etc monies – not a third party.
It is acceptable for the family member to borrow the funds, for instance, from their financial institution. The institution can place a lien on the parents’ house, although not the borrowers’ (subject) property. In addition, the borrowers/buyers cannot authorize the note with the bank.
The source of down payment money that the family member is utilizing for the loan cannot be directly or indirectly from anyone with a monetary interest in the transaction.
Payments, if applicable must be included in the debt ratio to qualify. In other words, if there are payments due, they need to be added to all other debts you may or may not have for qualifying purposes. So be careful when using this approach. It's best to ask a professional mortgage advisor who specialized in FHA Mortgages for guidance.
No balloon payments can be due inside 5 years. "Balloon" means the entire balance is due at the end of the designated term (in this case 5 years). Not allowed.
The CLTV (all combined first and second, if any liens on the property) CAN go over 100% of the sales price (or value) of the house, but there can be no cash back to the borrower beyond a refund of earnest money deposit.
The first mortgage loan amount calculations are not impacted by utilizing this resource.
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For help or questions contact:
Senior Loan Consultant - NMLS #126036
GMH Mortgage Services, LLC
625 W. Ridge Pike, Building C, Suite 100 | Conshohocken, PA 19428 | Direct: 610-355-8039 | Cell: 610-739-6563