January 14th, 2019 3:33 PM by Richard Sardella MLO.100007700/NMLS 233568
Trending more than ever: down payment assistance from Mom and Dad
It’s no longer the exception to the rule. Rising home prices are sending first-time home buyers to their parents for help with down payments, according to Ben Eisen's recent article in Realtor.com.
More than 26% of mortgage borrowers who used Federal Housing Administration-insured loans got assistance from a relative to make the down payment in the 12 months through September. This figure is up from about 22% in 2011.
It comes as no surprise that mom and dad are shelling out cash and helping their adult children achieve the American Dream of homeownership. It has been going on for generations. But according to the 2018 NAR Home Buyer and Seller Generational Trends Report, it’s on the rise. The FHA insures lenders against losses on the riskier loans they make. Borrowers taking out FHA loans are predominantly buying homes for the first time and often have weaker credit profiles that make it more difficult for them to get a conventional loan, so it makes sense these borrowers might need to ask for financial help.
This arrangement can be complex at times, with a need to structure the deal from a financial standpoint. Realtors often get stuck in the crosshairs when it comes to bringing family dynamics into the equation. But this can be avoided by having a solid plan and communicating well.
Business Insider’s Dana Bull, also a Realtor, says the first thing to do is to figure out a financial strategy that makes the most sense. She advises speaking with a lender, a financial adviser, a CPA, and an attorney to hammer out the details so that parents who want to lend a helping hand are not placing their financial situation in jeopardy.
Then comes the communication part. And it’s best to do this before even starting to hunt for a home. Figure out the motivation for the loan or the gift. As a parent, it should be more than about the pride having the wherewithal to do it. As the adult child, would you feel guilty about getting a windfall from your parents and then feeling indebted? These are feeling best fleshed out sooner rather than later.
Then there is involvement. Is it just about the money or do you, as a parent, intend to have a lot of input? Control issues can get in the way of this being a smooth decision. You’ll want to talk it out before sinking time into home shopping. According to Bull, a home inspection is not an appropriate place for a family feud.
How Rates Move:
Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgageand G-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Neutral
Mortgage rates are trending sideways this morning. Last week the MBS market improved by +7bps. This was not enough to move rates lower last week. We saw moderate rate volatility last week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to impact mortgage rates this week: 1) Brexit, 2) Govt Shutdown and 3) China
1) Brexit: Tuesday will see an important vote. Experts are speculating that the current plan submitted by PM May will be defeated and may even lead to another "no confidence" vote which could see her out as the Prime Minister. If the current plan is defeated, there may be a "plan b" submitted which contains changes that the EU most likely will not agree to which puts the odds of a "hard" Brexit very high.
2) Government (partial) Shutdown: The first official round of no paychecks just hit with a second round approaching fast. This could mean a reduction in the range of $2B in consumer spending each month that this drags on and will start to weigh on economic growth (there will still be economic growth, but it will be at a reduced level that it would have been).
3) China Trade: After several days of face-to-face negotiations last week which were touted by both sides as positive, the market will be looking for further movement towards an agreement.
This Week's Potential Volatility: High
Rates traded sideways all week last week on moderate volatility. We could see an increase in volatility with the above economic releases and Brexit. The Brexit vote is a wild card in the markets this week. If it completely implodes, we could see rates push slightly lower on inflated volatility.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
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