How Family Can Help You Get A Mortgage Loan

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Not everyone has someone they can rely on to help them apply for a mortgage loan when they are in need of a home loan. If you do have an alternative way of getting a loan, your family may become more involved in the process. Things would be easier if your family could join forces as you prepare to find a home together.

Down Payment

When you think about getting a mortgage loan, you probably envision saving enough money for a down payment. But what exactly is a down payment? And how much does it cost? The amount varies depending on your loan type, but generally, conventional loans require 20% down, FHA loans require 3.5% down, and VA loans require 0% down.

If you don’t have the money for a down payment, your family can help you qualify for your mortgage. When it comes time to apply for your home loan, remember to tell your lender about any gifts you’ve received from family members and check with your lender about the requirements for properly documenting these gifts. Some lenders may require that the donor writes a letter stating that the money is not intended to be repaid.

Co-signer

If you’ve got bad credit and don’t qualify for a mortgage, there are options if a family member will agree to co-sign the loan. A non occupant co borrower allows you to get approved for the loan, and they’re on the hook for the payments if you stop paying.

A co-signer is added to the loan in order to increase your chances of being approved. They share responsibility for making payments with you. If you stop paying, they have to pay. If they stop paying, you have to pay. It’s a bit like getting married – except you can’t get divorced from your co-signer on loan.

In most cases, anyone who is at least 18 years old and has good credit can help you get approved for the mortgage loan by serving as your co-signer. That person doesn’t necessarily have to be related to you (though it helps).

Gift Giver

Lenders are always looking for ways to reduce risk. If you have money saved up for a down payment already, that’s one less concern they have to worry about. But not everyone has savings set aside specifically for this purpose – especially first-time buyers without other assets in their name.

That’s where gifts come in. A gift from an approved family member or other benefactors can help cover the difference between what you can afford and what you need to buy the home of your dreams. In fact, some lenders will let you use multiple gifts from different people to reach your down payment goal.

Tax implications

The Internal Revenue Service has guidelines on gifts that affect both the giver and receiver. The rules are simple: If your parents give you money, up to $16,000 per person per year, they don’t owe any gift tax on the amount. That means if a married couple gives each of their children $16,000 in one year, they’ve transferred $64,000 without paying any gift taxes.

If your parents decide to give you more than the annual limit in any given year — perhaps instead of a birthday or Christmas present — they’ll have to file Form 709 with the IRS.

Credit score

A low credit score can be a roadblock to getting a mortgage, but there are ways to raise it. In fact, family members can help you get a mortgage loan, even if they don’t live in the same household.

A good credit score is an essential requirement for getting the best mortgage rates. The FICO credit scoring model rates consumers on a scale of 300 to 850, with those scoring above 760 considered to have excellent credit and qualifying for the best rates.

If your credit score is below 620, you might have trouble being approved for a mortgage loan at all. Mortgage lenders consider the debt-to-income ratio, employment history, and earnings when determining whether to give you a loan, but your credit rating is one of the main factors.

Friends and family can help you get approved for a mortgage. If you are looking for funds to complete your loan, your family will be able to help. They can provide funds from their own savings, or they might be willing to act as co-signers on loan.