I am purchasing a home from a family member at what he owes on the home, there will be over $100,000 in equity. The lender, now at the end of the loan application process, a day before our closing, now is requiring the owner (my family member) to state that he is giving the buyer (me) $104,000 as a gift of equity. The owner says he doesn't have to do anything, he can sell the house for what ever he wants to. The lender says they will charge us an extremely high interest rate if the owner will not sign this gift of equity sales contract. I am so frustrated!!!! This loan application was approved on October 19th, can they change all this at the last minute?
2006-11-07 14:10:25 · 7 answers · asked by Amy H 1 in Business & Finance ➔ Renting & Real Estate
For computations sake, let's say the house is worth $200,000 and you are buying it for $100,000. You are getting a loan for $100,000. Without the letter stating there is an equity gift, you will be purchasing the house (selling at $100K for $100K) with a 100% loan to value. This, unless you are getting a VA loan, almost always raises the rate of the loan. The other thing that is going on here is that the lender wants to ensure that you don't have a 2nd Private Mortgage that they know nothing about. This way they can say they are lending with a 50% loan to value, which gives you a great rate and gives them low risk - regardless of your credit. They are also making sure that no-one gets sued for taking advantage of the seller.
2006-11-07 15:30:01 · answer #1 · answered by Dawn J 4 · 0⤊ 0⤋
It would depend on the terms that the original loan application was approved for and the understanding of the lender. How was the sales contract between you and the family member drawn up prior to the appraisal? There are some lenders that are cautious when a purchase transaction is between family members and at a large percentage below fair market value(FMV). Gift of Equity is often used with family transactions and can carry Federal Gift Tax issues as well as state tax issues depending on state laws. The lender is not going to be put in a position where someone is allowed to walk around the gift tax laws.
In the case you show the equity you are getting is almost 50% of the FMV. What is the ratio of debt to income and housing to income that you will have taking on this mortgage? The lender is going to be reviewing your ratios and cash in the game with this kind of FMV. Talk to your Loan Officer and find out the facts as to why the lender requires this and what options you have available.
Good Luck.
2006-11-07 14:47:04 · answer #2 · answered by Margaret K 3 · 1⤊ 0⤋
I think "Real Estate Dawn" has done a good job of answering this qtn.
Look! There is a misconception on how loan amounts or LTV ratios are determined. When the transaction is a straight purchase (as in many cases) the lender will always advance based on the lesser of cost (i.e. purchase price) or appraised value. So, if the purchase price is $100k and the appraised value is $150k, the lender will advance based on the purchase of $100k which is the lesser of the two values. So, for example, the applicable LTV ratio would be 80% of the cost of $100k, which would yield a lower loan amount to the borrower as compared to 80% of value of $150k.
For the lender to advance based on the value in this case, the equity has to be gifted to the borrower. This gift of equity in effect acts as the borrower's down payment, which allows the lender to advance a higher loan amount since there is a higher "equity injection" from the borrower.
In regard to the interest rate, it may be that your debt to income ratios exceed the lender's policy WHEN the higher loan amount (i.e one based on value and not cost) is used. As such, the lender has to penalize you with a higher rate since you are present a greater borrowing risk as a result.
2006-11-08 02:24:08 · answer #3 · answered by boston857 5 · 0⤊ 0⤋
The lender is correct you will not get 100% financing on a traditional 30 yr mortgage without a high interest rate. They calculate your ltv using the sales price or appraised value whichever is lower. You still have to put down 20% to avoid pmi. You can start pulling equity out of the property after a year of making payments. I still would speak to other lenders regarding the gift of equity contract.
2006-11-07 19:18:49 · answer #4 · answered by tianaramal 4 · 0⤊ 0⤋
That makes no sense, the lender should not be involved in the cost, as long as the house is worth the appraised value. I have never heard such a thing. I would look at a different lender.
2006-11-07 14:13:39 · answer #5 · answered by kgreives 4 · 0⤊ 0⤋
The settlement maximum likely has a contingency clause. extremely, a clause that releases your chum from all duties lower than the settlement if she does not promote her modern-day residing house. This contingency virtually continually comes with what's colloquially common as a kickout clause. This clause shall we the broking service void the settlement except the customer can exhibit that she will be able to be able to fulfill the words of the settlement no matter if her modern-day residing house sells or not. seventy 2 hours is a everyday remaining date to be able to grant sufficient information. this concern is a double-edged sword. The clause protects your chum could her residing house not promote, yet her settlement to purchase isn't iron-clad, it really is why somebody else is able to trump her grant. hence, that is a gamble of kinds and except your chum receives an grant on her residing house, one which she will be able to lose.
2016-11-28 21:53:30 · answer #6 · answered by ? 4 · 0⤊ 0⤋
That is nuts, go to a different lender.
2006-11-07 14:21:32 · answer #7 · answered by Anonymous · 0⤊ 0⤋