by Dian Hymer.
First-time buyers often have plenty of income to qualify for a home mortgage. Their biggest problem is usually amassing enough cash for a down payment.
Although there are many low-down loan programs (such as Freddie Mac, Fannie Mae, VA and FHA, as well as state and local first-time buyer programs), they do have their limitations.
One problem is that the upper loan amount limit for most of these programs is $214,600 or less. In major metropolitan areas where housing is expensive, homebuyers often need larger mortgages in order to buy a home.
Another problem is that some of these loan programs have income limitations. If you earn over the limit, you can't qualify.
There are several other financing options for low-cash-down homebuyers. One is to get a cash gift from a parent or relative. If your parents wish to give you enough for a 20 percent down payment, a lender will give you an 80 percent mortgage.
With enough cash in retirement accounts or other liquid assets, some lenders will give you a 90 percent mortgage. If so, your parents would only have to give you enough for a 10 percent down payment. However, if borrowers don't have substantial assets of their own, most conventional lenders won't lend a 90 percent mortgage if all the down payment money is a gift.
Borrowers who want 90 percent financing will find that lenders usually require that half the down payment, or 5 percent of the purchase price, be your own money. The other 5 percent can be a gift. With 95 percent mortgages, the entire 5 percent down payment must be the buyer's money.
One way around these restrictions is to have parents who are giving the money co-sign for the loan. With co-signing parents, most lenders will allow all of the down payment to come from the parents. However, the parents will have to go on title. And they will be jointly responsible with their children for mortgage payments.
Lenders require relatives who are giving money for down payments to provide a "gift letter" which states that the money does not have to be repaid. This poses a problem for some homebuyers and their relatives, particularly if their agreement is that the money will be repaid.
First Time Tip: A relatively new mortgage product on the market makes it possible for relatives to provide down payment money without having it be a gift. A pledge account mortgage -- currently available through World Savings and Loan and American Savings Bank -- enables the borrower to get 100 percent financing if a relative (or more than one relative) agrees to pledge a savings account or Certificate of Deposit as collateral for the loan.
The pledged account must be opened with the mortgage lender. With American Savings Bank, the pledge must be for a minimum of 10 percent of the purchase price or appraised value, whichever is less. The maximum loan amount with a 10 percent pledge is $400,000. Loan amounts for up to $600,000 are available with larger pledges.
A benefit of this loan program is that the person who pledges the money continues to earn interest. When the borrower has sufficient equity in the property, the pledge money is returned.
The Closing: A drawback of the pledge account mortgage is that it limits the kind of mortgage you can get. A pledge account can't be used with some of the more popular mortgage products and you might not get the most competitive interest rate available.
. Questions of a Do It Yourself nature should be submitted our "