Do your parents want to stay in their house? Or maybe they want to buy a house to escape the rent trap.
If you think outside of the proverbial mortgage drawing framework, you may be taken there.
There are many parents with the physical and mental capabilities to live alone. Either the parents or their children or the combination of the two can qualify financially for the plethora of little-known mortgages available in the market. Here are some options.
Reverse mortgages: According to Jon McCue, director of customer relations for the National Reverse Mortgage Association, there are 27 million households in the United States of people who are 62 years of age or older.
Can you trust the bank to keep your home equity line of credit (HELOC) open for a few years? During the days of the mortgage meltdown of the Great Recession, banks are known to have frozen and canceled home credit lines.
Let us assume that grandma and grandpa are rich in equity and poor in households, or at some point they will exhaust their retirement savings. You could get an FHA reverse mortgage with a line of credit that increases as you age. Even if home values go down, the line of credit continues to grow. You never have to pay back a dime on those negative amortizing mortgages.
The qualification threshold for financial evaluation is relatively low. You can take out the line of credit now and don’t use it until you need it. This ensures they have access to these type of loans as they may not qualify later if their finances go down, McCue said.
The line amount is based on the date of birth of the youngest borrower. At least one borrower must be 62 years of age or older. Unlike a bank HELOC, which is usually free of charge, this HELOC with no notice (until you die or move out) costs 2% for FHA mortgage insurance upfront for each initial draw plus points, escrow, title, and the like, McCue said.
Parental Loans: How about co-signing for your people when they otherwise can’t qualify? Maybe they want to live alone. Or how about helping mom and pop buy a group home for them and their friends?
Fannie Mae calls this a parental loan. As long as the parents cannot qualify themselves, they can receive self-used mortgage interest with just a 5% discount.
Jumbos: Sometimes Fannie Mae’s credit limits are not high enough. Sometimes there are mortgage qualification challenges that Fannie Mae type mortgages are not eligible for. When mortgages are mentioned above these jumbo loan limits, it means they are great.
However, there are plenty of jumbo investors out there who offer more convenient underwriting for special circumstances. For example, bank statement loans.
Fannie only says “no” when it comes to adding bank statement deposits to calculate income. Many lenders offer jumbos and other formulas to help increase mom and dad income outside of the traditional underwriting framework.
Although not referred to as parent loans, some jumbo lenders allow non-inmate co-borrowers, just like Fannie Mae, for mortgage qualification purposes.
Let’s talk about being in the chips even with weak tax returns. A jumbo lender allows children to qualify for a mortgage on a bank statement to calculate income as long as at least one person (parent or child) is self-employed.
According to Attom Data Solutions, the jumbos in Los Angeles and Orange Counties decreased in 2018, but increased in 2019 and 2020. The numbers fluctuated up and down in San Bernardino County and fell in Riverside County for four years.
For higher priced homes with larger mortgages, my detective work only found a lender who would allow adult children to piggyback a Fannie Mae and traditional HELOC first to avoid higher jumbo mortgage rates. You need to put at least 10.1% on this mortgage.
Creative funding is the name of the game. Ask. Don’t assume that mom and dad are in a situation that they want to improve.
Freddie Mac Rate News: The 30-year fixed interest rate averaged 2.98%, 1 basis point higher than last week. The 15-year fixed rate averaged 2.31%, 2 basis points higher than last week.
The Mortgage Bankers Association reported a 2.5% decrease in mortgage application volume from the previous week.
Bottom line: Assuming a borrower receives the average 30 year fixed rate on a compliant loan of $ 548,250, the payment last year was $ 74 more than this week’s payment of $ 2,306.
What I see: On-site, well-qualified borrowers can get the following 1-point fixed rate mortgages: a 30-year FHA at 2.25%, a 15-year conventional at 2%, a 30-year conventional at 2.625%, a 15- year old. conventional high-balance year ($ 548,251 to $ 822,375) at 2.25%, conventional 30-year high-balance at 2.875%, and 30-year jumbo at 3.125%.
Eye catching loan of the week: A free 30 year fixed rate of 3%.