Info needed on mortgages

[ead79]

I was hoping that someone here on the DIS is an expert on mortgages. Here's my situation, and I'm wondering what my options are.

My parents have made an incredibly kind offer--they will purchase another house and let us rent it from them (for no profit for them). The other option is for me and my then husband to purchase a house ourselves, but with no money down at all. My parents have excellent credit (as do I), but don't have cash to put down either.

Would it be better mortgage rate and downpayment wise for them to purchase a house or for us to buy one? They have higher income, but I was thinking that we might be eligible for some loans for first time homebuyers that they wouldn't be eligible for.

Does anyone know what options we might have? Thanks for any help at all.

 

[CinderellaPrincess]

I would recommend buying the house on your own for the tax benefits. There are programs out there for no money down. One of which is an 80/20 loan. The 80/20 loan is really 2 separate mortgages where you are borrowing your down payment. The plus to this mortgage is that you do not have Mortgage Insurance. The downside is that the interest rate is usually a little bit higher (but really, not by very much). DH and I will be going this route as soon as our current house sells. Good Luck!

 

[ducklite]

If they buy a house there are tax implications for them. If you buy one you'll be able to deduct the interest and taxes.

Here's your solution.

You need an FHA loan. Your parents can "gift" you all the down payment and closing costs money (about 3-5% of the purchase price, there's a whole formula that the bank will do to figure it out for you). They will have to sign a form stating that it's a gift and no repayment is expected, but what you do down the line is your business--the bank is certainly not going to check.

FHA has no first time buyer or maximum income restrictions. Most banks and mortgage companies offer them. THere are maximum loan amounts, but they are genreally on par with median housing prices in most markets. The rates are competitive with traditional FNMA rates, maybe a quarter higher, and usually one orinigination point which can be financed.

Good luck!

Anne

 

[Minnesota!]

I have to completely agree with the last 2 posters. Buy it on your own. Even if you can't afford exactly what you want, I say get into a house, build up equity (and even better credit), save up for a down payment, and then in a couple years, sell for a profit AND have a down payment and move into your dream home. that is what we are doing. There are so many programs and such to help first timers, and no down payment people. We only ended up putting $1600 or so down. It is very doable.

 

[RUDisney]

You can purchase a home with no down payment if your parents want to give you a demand note that is payable, let's say, in 5 years. That is your down payment. In 5 years, you can take out a home equity to pay off that loan, or you can refinance your existing mortgage. To protect your parent's interest, they can file a mortgage that will be listed on your deed. They will be the second mortgager, and an attorney can draw up the appropriate documents for this.

You'd get the tax benefits and you'd get a house. Remember this... you will have to pay PMI (private mortgage insurance) if you don't have 20% down. That 20% is calculated on the purchase price of the home. For refinances, 20% is calculated on the appraised value of the house. It's easier when you do the refi than when you take out the original mortgage since appraisals are usually a little higher as time goes by.

 

[mtemm]

We've never done an FHA loan, but we have done 103% loans (financed the whole cost plus closing costs) and a a 80/5/15 loan. With the 103% loan we were nervous and hated paying PMI, but I am so glad we did. We moved (dh's new job) less than a year later and because of the hot market we lived in we made enough to put 5% down on the next house and still pay for closing costs/realtor fees, etc. With 5% down we were able to take out a 2nd mortgage for the 15% so no more PMI. Actually the second mortgage ended up being cheaper than if we paid PMI instead of taking it out.

I would buy the house yourself. If you can swing it and your parents agree, have them gift you some money for the downpayment. They will have to sign something saying its a gift, you don't need to pay it back. We did that with our first house because even though we financed 103%, there was still a few thousand $ that we needed and didn't have. We did pay my MIL back, the bank just had a note saying we didn't have to.

Good luck with whatever you decide!

 

[ead79]

Thanks for all the help, guys. It sounds like the consensus is that we can get better rates/financing if we buy the house ourselves without my parents. Anyone else got any thoughts?