Another home purchase question

[dabuddha]

So here's my current situation

My current home, I have about 45% equity in (I'm probably using the term wrong but I owe about 55% of the homes value still). I spoke with an agent and I plan on putting my house on the market in a few days or so.

We have a home in mind that we'd like to make an offer on.

I spoke with the seller's agent and he said he can put in an offer with a contingency that I sell my house first. My concern with going this way is how much of a colossal pain in the ass it'll be if I get a contract for my house and the seller of the new house backs out for whatever reason (she's a little wonky).

So my goal is to purchase the new home and then sell my old home. I plan on putting about $120k down so that my new mortgage amount would be the same as my current one. I ran the following scenarios by a Citi Mortgage rep (who I have my current mortgage with):

1. Use the equity that I have in my current home to use as the down payment for the new home. Was told that it can't be done (which I expected as much)
2. My father said he can purchase the home in his name and get an assumable loan (he'd basically be "loaning" me the down payment). I'd be the one making the mortgage payments and once I sold my house, I'd assume the loan. The rep told me that it's hard to make an assumable loan plus it'd be considered an investment property since my dad wouldn't be the one living in the house
3. My father would apply for the loan along with me and once I'm all set, he'd remove himself from the loan. The rep told me that it'd be considered an investment property and I'd end up with a much higher rate (though I'd be on the loan and this would be my primary residence).
4. Worse comes to worse, the citi rep said I'd qualify for both mortgages and my dad could gift me the down payment ($120k). The problem with this is the tax implications it would have since I think the IRS limits gifts to $14k per person so I'd only be able to get a total of $56k ($14k to me and the wife from my dad and $14k each from my mom)
5. Dad could loan me the money but since it's a large amount, he'd have to charge me interest which I couldn't figure out what the going rate is. Again, the govt trying to take money they have no right to :/

Any other ideas that I'm not thinking of?


CLIFFS:

• want to purchase new home before selling mine
• need to finance new home
• can't figure out how to do so without getting screwed.

EDIT 12/3/2013:
So looks like I'll be going with option #3. The citi mortgage rep either lied to me or gave me wrong information since it apparently wouldn't be considered an investment property. The one broker I was speaking with told me that when I was ready to remove my dad from the mortgage, I'd basically have to refi. Given that, I started looking at rates and I was offered a rate of 2.875% if I get a 5/1 ARM 30 year mortgage. Normally I'd avoid ARM loans like the plague but I figured if I have to refi anyways, might as well take advantage of the lower rate as long as I can. Good/bad/stupid idea?

 

[DesiPower]

Why dont you buy it at a low low down payment and they pay towards the principle later, Or refinance when you get the money from the sale of old house.

Also for #5 if its your dad, why don't you juts ask him?

 

[dabuddha]

Why dont you but it at a low low down payment and they pay towards the principle later, Or refinance when you get the money from the sale of old house.

Also for #5 if its your dad, why don't you juts ask him?

My dad's asking me to find out all the information. I couldn't find any clear answer online on what the interest rate would be he'd have to charge me. Is there a certain time limit from when you first start a mortgage to when you can refi? Cause my other goal is to keep my mortgage payments as close as possible.

 

[DesiPower]

My dad's asking me to find out all the information. I couldn't find any clear answer online on what the interest rate would be he'd have to charge me. Is there a certain time limit from when you first start a mortgage to when you can refi? Cause my other goal is to keep my mortgage payments as close as possible.

I think to make it legal he has to do some paperwork and find some type of agent or lawyer, both will cost money. But if he does that the lender can decide his/her own interest rate. One of my relatives does that and typically for large amounts they go for around 5% - 8%

http://www.nolo.com/legal-encyclopedia/promissory-notes-personal-loans-family-30118.html

 

[Scarpozzi]

Why dont you buy it at a low low down payment and they pay towards the principle later, Or refinance when you get the money from the sale of old house.

Also for #5 if its your dad, why don't you juts ask him?

It sounds good up front, but don't finance it twice. You'll get hit with double the closing costs.

Everyone selling a house has this problem. Just take a deep breath and relax. The whole process can be drawn out 30-45 days. You may know the house you want, but if you have an accepted offer with your contigencies, you should be set.

What you need to do from there is set a closing date far enough in the future that gives you time to sell...and close enough to keep the seller interested. After the holidays wouldn't hurt.... Just talk to your agent and get some advice from them and have them really push your house....do an open house for other agents, etc...

 

[Blackjack200]

My dad's asking me to find out all the information. I couldn't find any clear answer online on what the interest rate would be he'd have to charge me. Is there a certain time limit from when you first start a mortgage to when you can refi? Cause my other goal is to keep my mortgage payments as close as possible.

Ask a tax professional, but maybe he could loan you the money at 0% interest with the interest that he should be charging you being considered the "gift".

Example: He loans you $120k at 5% interest as a business transaction, but then gifts you the $5,000/year interest.

Edit: Also, here's the rate he'd need to charge: http://www.nationalfamilymortgage.com/afr-rates/

 

[jaedaliu]

4 and 5 combined are the easiest. Though, I guess you don't really need to do 4.

1) Your parents gift the 2 of you the max for 2013.
2) Take a loan from your parents for the remainder.
-- Sample loan documents available online. I used RocketLawyer as a template.

Assuming your parents don't really need the interest, you repay your parents when you sell your place and they gift you the interest (or is it forgive the interest?) in the meantime.

 

[EagleKeeper]

Being at the end of the year;
Have your parents set up the gift of $14K from each to both you and your wife.

Then on Jan 1; they can again do the same.
Now you are at $112K

If your Dad was then to loan you the remainder of the down payment; the amount is not enough to be classified as charging needing to interest on. IF you want to treat is properly then interest can be considered what your loan rate is for the house.

 

[dabuddha]

Ask a tax professional, but maybe he could loan you the money at 0% interest with the interest that he should be charging you being considered the "gift".

Example: He loans you $120k at 5% interest as a business transaction, but then gifts you the $5,000/year interest.

4 and 5 combined are the easiest. Though, I guess you don't really need to do 4.

1) Your parents gift the 2 of you the max for 2013.
2) Take a loan from your parents for the remainder.
-- Sample loan documents available online. I used RocketLawyer as a template.

Assuming your parents don't really need the interest, you repay your parents when you sell your place and they gift you the interest (or is it forgive the interest?) in the meantime.

I never thought about having the interest I pay giftable. My dad doesn't need/want the interest. He just wants to do this with paying the least possible amount to anyone outside the family.

So looks like 1&2 are pretty much out. 3 would have been ideal but that's bull shit that they'd consider it to be an investment property (unless the citi rep was wrong or I misunderstood him). If the interest amount is giftable, then #5 would be ideal in that case (if #3 is not possible I suppose).

The other tricky thing I forgot to mention about the new house is it'll need about 2 weeks of reno before it'd be livable. The kitchen needs to be "gutted" (counters/flooring/appliances need to all be replaced). The carpeting in the whole house needs to be replaced and ideally before doing the carpeting, I'd like to paint the whole place so I don't have to cover up the flooring. I'm offering $320k for the new house and the surrounding houses are going for about $450-475k. The whole house needs about $50k worth of work which is probably why its been on the market for so long and he's weeks from being foreclosed upon so he's desperate to sell

 

[dabuddha]

Being at the end of the year;
Have your parents set up the gift of $14K from each to both you and your wife.

Then on Jan 1; they can again do the same.
Now you are at $112K

If your Dad was then to loan you the remainder of the down payment; the amount is not enough to be classified as charging needing to interest on. IF you want to treat is properly then interest can be considered what your loan rate is for the house.

That might be the way to go also if #3 is not possible.

 

[dabuddha]

Spoke with a guy from roundpoint mortgage and he said

1. We could have both you and your dad on the application. Your dad would be the non-occupant coborrower, that way he does not have to gift you the downpayment money and don’t have to worry about any IRS restrictions.

 

[Tweak155]

We were in a similar boat a few months back. I just sold my house and big items that I couldn't keep and moved to an interim location. May cost me more but low on the stress side. I have to move twice but I just didn't unbox most of my stuff. I might pay someone for my 2nd move.

 

[dabuddha]

We were in a similar boat a few months back. I just sold my house and big items that I couldn't keep and moved to an interim location. May cost me more but low on the stress side. I have to move twice but I just didn't unbox most of my stuff. I might pay someone for my 2nd move.

If it was just the wife and me, I would totally do that. But I got 3 little rugrats that tag along behind us (the youngest being 18 months old) and I want to try to make it seamless as possible.

 

[DesiPower]

We were in a similar boat a few months back. I just sold my house and big items that I couldn't keep and moved to an interim location. May cost me more but low on the stress side. I have to move twice but I just didn't unbox most of my stuff. I might pay someone for my 2nd move.

It can be hell, moving with family to a new house itself is a LOT of work let alone an interim move... I cannot imagine doing that...

 

[Tweak155]

If it was just the wife and me, I would totally do that. But I got 3 little rugrats that tag along behind us (the youngest being 18 months old) and I want to try to make it seamless as possible.

It can be hell, moving with family to a new house itself is a LOT of work let alone an interim move... I cannot imagine doing that...

Ha, well it is just me, my wife and our dog.

I would have definitely opted to move once if given the option, but our interim location has been saving us $$ in the meantime, and gives us plenty of time and no pressure to find a new place. We won't make the same mistake of buying a house for such a short period of time. We rushed too much.

 

[dabuddha]

Update: 12/3/2013

So looks like I'll be going with option #3. The citi mortgage rep either lied to me or gave me wrong information since it apparently wouldn't be considered an investment property. The one broker I was speaking with told me that when I was ready to remove my dad from the mortgage, I'd basically have to refi. Given that, I started looking at rates and I was offered a rate of 2.875% if I get a 5/1 ARM 30 year mortgage. Normally I'd avoid ARM loans like the plague but I figured if I have to refi anyways, might as well take advantage of the lower rate as long as I can. Good/bad/stupid idea?

 

[OCGuy]

Will probably send you a pm after fundings are over with some info.......

I'm constantly reminded how many headaches are caused by guideline ignorance from loan officers......... :/

 

[Tweak155]

Update: 12/3/2013

So looks like I'll be going with option #3. The citi mortgage rep either lied to me or gave me wrong information since it apparently wouldn't be considered an investment property. The one broker I was speaking with told me that when I was ready to remove my dad from the mortgage, I'd basically have to refi. Given that, I started looking at rates and I was offered a rate of 2.875% if I get a 5/1 ARM 30 year mortgage. Normally I'd avoid ARM loans like the plague but I figured if I have to refi anyways, might as well take advantage of the lower rate as long as I can. Good/bad/stupid idea?

When do you plan to refinance, about 5 years in?

 

[dabuddha]

Will probably send you a pm after fundings are over with some info.......

I'm constantly reminded how many headaches are caused by guideline ignorance from loan officers......... :/

Will be appreciated 🙂

The rates he gave me were 3% for a 5/1 ARM and 4.375% for a 30 year fixed conventional loan

 

[alkemyst]

My dad's asking me to find out all the information. I couldn't find any clear answer online on what the interest rate would be he'd have to charge me. Is there a certain time limit from when you first start a mortgage to when you can refi? Cause my other goal is to keep my mortgage payments as close as possible.

You can refi at any time…almost no mortgage should have any kind of pre-payment penalty.

However; there are sometimes fees for a refi that makes it not such a great deal.

 

[Wreckem]

..

 

[jagec]

The problem with the "I'll just refi later" point of view is that you can't refi into today's rates, several years from now. Chances are that they will still be low in a few years, but the Fed can't hold interest rates near zero forever.

If you're going to sell the house instead, or be able to pay all or most of it off if rates skyrocket, it may not matter to you.

Penfed is a great place for refis, as they have fairly competitive rates and cover all or most of your closing costs. Their underwriting standards are pretty strict, however, and the processing time can be substantial. Right now they've got a 2.625% 5/5 ARM where they cover all closing costs.

You can refi at any time…almost no mortgage should have any kind of pre-payment penalty.

And in 99% of circumstances, you should walk away from any mortgage that does.

 

[TwiceOver]

Option 6. Don't even look for a new house until you sell your current one. Unless the possibility of being stuck with both houses isn't a big deal.