FHA Mortgage Loan: Requirements For 100% Financing For First-Time Home Buyers Part 2

Part 1 / Part 2

Purchase Transactions: Family members may lend 100% of the borrower’s required cash to close (on a secured or unsecured basis): Yes secured against the property or not secured is also allowed.

• May include down payment, closing costs, prepaid expenses, and discount points.
• Cash back to the borrower is not allowed.
• Maximum CLTV is the lesser of 100% of the property value, or the sum of the sale   price plus closing costs, prepaids, and discount points. (the cltv will include the 1.75 UFMI premium required by FHA)
• The maximum insurable mortgage is not affected by loans from family members.
• If it is secured against the property, the second lien may not provide for a balloon payment within five years from the date of execution.
• Period payments may not be required. If periodic payments of the secondary financing are required, the combined payments may not exceed the borrower’s reasonable ability to pay. The secondary financing payments are to be included in the total debt-payment-to-income ratio (i.e., the “back-end” ratio) for qualifying purposes
• The source, amount and repayment terms must be disclosed in the mortgage application and the borrower must acknowledge that he/she understands and agrees to the terms.
• The family member providing the secondary financing may not borrow the funds from a   source with an interest in the sale of the property including, the seller, builder, loan officer or real estate agent. In addition, the borrower receiving the funds from a family    member may not be the co-obligor on the note used to secure the funds. For example, a son and daughter-in-law may not be on the note for the funds borrowed by the parents, which in turn was lent for the down payment.
• Document the source and transfer of funds from lending family member to borrower. Transactions involving a loan from a family member cannot also be a sale from one family member to another.

We should all know by now that an FHA mortgage will allow a borrower to use a gift from a relative for a purchase transaction.  If you do not have a relative with the financial capacity to gift you the required money, hopefully a “family member”  will at least be in position to lend it to you either from their own funds or borrow it and then lend it to you since you may not borrow the money yourself personally from a source other than a family member.

Borrowing from family members as stated above is allowed by FHA for anyone purchasing a home whether they are a first-time home buyer or not.

It is my opinion, if you are a first-time home buyer eligible for the up to $8,000 tax credit and need the $8,000 toward your 3.50% required down payment and or closing costs,  see if a family member will loan you the money  either as a secured or unsecured loan.  Then when you get your tax credit refunded back to you, you can pay them back.  Although, the loan may NOT have a balloon payment due within 5 years, it does not state that you cannot  pay it back whenever you want to.

• First time home buyer tax credit expires in 2 months and 14 days.
• Current mortgage rates are still below 5% for a 30 year fixed rate mortgage
• Mortgage interest rates are still at historically low levels
• Home prices are still at very attractive/affordable levels
• It is still a buyers market if you may also require seller paid closing cost assistance.
• It is still a buyers market when negotiated a price for the house you want

Total Mortgage Services is here to assist you with all of your FHA financing needs and to put you into the best FHA programs available. This once in a life time opportunity where all the above are available at the same time will not last forever. I promise you that.

Read Part 1 of this post: FHA Mortgage Loan: 100% Financing For First-Time Home Buyers Part1