Thursday, February 20, 2014

100% Gift on Conventional Loans

For over 20 years we’ve been telling realtors that your borrowers have to have at least 5% down of their own funds on conventional loans.  Well, no more.  Fannie Mae now allows all gift funds on conventional loans!  That is really good news that should open the door for many a borrower this year.  Conventional loans are usually a better deal for your borrower and are certainly easier on property appraisals.  

There is no pricing adjustment and yes, you can get mortgage insurance just like normal. 

One thing to be careful of here is to remember, at least at present, this only applies to Fannie Mae loans and not Freddie Mac.  Most of time this won't make a difference but in some cases it can.  For example I just had a cosigner deal that had to go Freddie Mac because Freddie will basically blend all income/debts when calculating debt ratio's where Fannie Mae wants the occupying borrower to stand on their own (or nearly so) debt ratio wise.  So, don't assume you can use all gift funds when you have a cosigner.  But don't worry, you can still go FHA if you have a cosigner AND all gift funds.  

Because lack of funds to close is the single biggest barrier to home ownership in our country this should go a long way to helping put people, especially first time buyers, into homes.   

A last note on gifts.  I've noticed a small but growing trend in grandparents helping their grandkids buy their first home.  When I interview a prospective buyer that "doesn't have anything saved yet" I always ask if a gift from a relative might be a possibility.  They usually say no straight away but I'm surprised by the growing number of buyers who come back (often shocked themselves) when grandma and/or grandpa offer to help them with the down payment.  And now we can put that good deed to good use with a conventional loan.

I love good news in any form but especially when it helps put people in homes...

Eric Lundberg - NMLS #261588
President, Chinook Mortgage Ltd - NMLS #261588

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