By Tammy Engel
Mortgage Advisor
Other people's money
Mortgage Matters
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Leverage is good. If you can afford the repayment terms, using other people’s money can be a smart way to keep your own cash liquid in case of emergency.
What does that mean in today’s mortgage world? Most purchase-money loans these days allow for the down payment (if there is one) and/or closing costs to be made from a family member’s gift to the buyer. Note well the word “gift”: In most cases the donor and buyer are required to sign a form letter acknowledging there is no repayment to the donor required. In years past, folks got caught in post-closing audits when quality control called the phone number on the gift letter to confirm the “loan” given. Oops, a gift is not a loan. Don’t fudge the truth on loan docs!
When you’re buying a vacation home, there is no need to have a full 20% down. Today a 10% down payment would do the trick in most cases, and you can get these loans without having to pay monthly mortgage insurance. It’s a neat way of financing what may turn into your retirement home later, without tying up so much of your cash now.
For investors wanting a rental property, you do indeed need 20% down in current market. If you are buying a duplex, triplex, or quad you may need a bit more than that.
What surprises so many buyers is how little an extra down payment moves the monthly expense. You’d think an extra 10% down would make a world of difference, because that’s a lot of money! But when you work with your professional mortgage advisor and run the analysis, lots of times you’ll realize that maximum financing makes better sense.
Of course you need to stay within your budget for the monthly housing expense, but running all possible scenarios is a good idea whenever you embark on new financing. Work with your local professional to be certain the plan you choose makes the best use of your assets and of the leverage available to you.
Tammy Engel is your local Mortgage Advisor, and has been working for your best interest since 1990. Contact her at 661/822-7325 about purchase, refinance, and reverse mortgage.
