Mortgage Rate News

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When we bought our home a couple of years ago, we needed a bit of help. My parents gave us a gift of $1,500 to help us toward our down payment. This is perfectly acceptable, but it needs to be clear that the money is a gift, not a loan, and that the giver understands this. The Mortgage Reports has three steps to making sure that a down payment gift is handled the right way:

1. Create a “down payment gift letter”: This is document that includes the amount of the gift, the address of the property that is being bought, the relationship between the giver and the receiver, states explicitly that the gift is not a loan and is signed dated by all involved.
2. Get the money: Use a method that will leave a paper trail. The Mortgage Reports recommends a certified check, because there is a cashier receipt provided to the giver. This should be kept as a record of the transaction.
3. Deposit the money: Make a separate deposit of the money. Do not get cash back. Do not add another check or cash to the deposit. Deposit exactly the amount of the down payment gift.

You should also understand that gifts come with tax implications. You will need to check with a knowledgeable tax professional to make sure that everything is handled correctly.

Watch out for down payment assistance programs

Even though laws have been enacted to make down payment assistance programs tougher to administer, they still exist. Be aware that some of these programs are actually loans. They are not worded as such, but that is what they are. You need to avoid these, since they can add significantly to the cost of your home mortgage loan.  Some of them are pretty much scams.

Be careful of where you get help making a down payment. With down payment requirements increasing, you may need to save up more money and/or get some help from friends and relatives. Just remember, though, that down payment help is supposed to be a gift, free and clear, and not a loan.

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New home sales made an unexpectedly large gain in June, according to reports. Data shows that new home sales increased 11% in June. This is providing speculation that the worst of the housing market slide is over. Bloomberg reports on the implications of this jump in new home sales:

Deutsche Bank Securities Inc. and Goldman Sachs Group Inc. economists said today’s figures signal an end to the slide in home construction and sales. While that means the drag on economic growth will turn to a stimulus in the second half of the year, property values are likely to continue falling and rising unemployment will temper the recovery, analysts said.

“We’re barely past the housing bottom, this thing is still fragile,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York. “It’s not premature to talk about home prices bottoming — it’s somewhere in the next three to six months. There is light at the end of the tunnel.”

Of course, this doesn’t mean that everything is fine. There are still concerns over  home values, and there is the possibility that the employment picture could provide another boost to inventory on the market if continued job loss prompts more foreclosures. However, there is hope that this could mean that the housing market — and perhaps the economy — is on its way back up. It will be interesting to see how things go in the coming months.

For those interested in buying a home in the relatively near future, it is time to be on the alert for rising home prices. While the pricing bottom may not have been reached, there are probably some markets where home prices are starting to make a modest recovery. It is a good idea, before you decide to get a home mortgage loan, to do research on your local real estate market, and figure out whether you should start the buying process now, before recovery sets in and you can no longer find the great deals.

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The government is really hoping that you will buy a home — especially if you are a first-time homebuyer. Not only is there are generous tax credit available, but you can use it now to put toward the down payment on your home. Some state governments are also offering special first-time home buyer programs, like the Illinois plan to provide interest-free loans that can be used toward a down payment. If you’re ready to buy, now is a great time to do it. But you should be careful. Gather Little By Little offers some helpful tips for first-time homebuyers:

1. Get pre-approval. This is when you are actually approved (not just qualified) for a certain loan amount. This is essentially an agreement that the bank will finance you. Here is what GLBL says about pre-approval: “Being pre-approved will not only allow you to focus on the homes you can actually afford and are approved for, but can often give you more negotiating power as well. “
2. Remember closing costs. There are a number of closing costs that come with buying a home. The down payment is just the tip of the iceberg. While many closing costs can be covered by the seller (especially in this market), you will still have to pay a number of fees from origination fees to appraisal fees to title fees. You can have them rolled into the loan, but this increases the overall cost. If possible, it’s best to pay closing fees with cash.
3. Shop around. As with any other major purchase, it is important to shop around to make sure you are getting the best deal.
4. Consider resale. When we bought our home, we considered its resale potential. We considered neighborhood, schools and other issues. We already know how we will sell the home when we go.
5. Use a buyer agent or broker. Don’t use the same representative that the seller is using. Most states have a designation that says whether the person you are working with is required to work for the buyer’s advantage. Here is what GLBL says about it: “This will be  real estate agent that will sign an agreement to work in your best interest.  A good and ethical agent will truely do this as well, even at the cost of their own commission.”

You should also have a home inspection, consider the costs of property taxes and make sure you read through the paperwork and understand the fine print. It’s a lot of work, but it’s the best way to get a good deal on your home.