I’m buying another property, but I plan to call it a second home so that I can get a better interest rate.
No You’re Not: Unless it has vacation/resort amenities and is 50+ miles away from your primary residence, it will be treated as an investment property and carry a higher interest rate].
I have an FHA loan on my home, and I’m going to use FHA again to minimize the down payment on my second property.
No Sir: You can only have one FHA loan at a time and it must be on your primary residence (and besides, there are conventional financing programs that offer loans as high as 97% of value).
Unless I’ve had 24 months of self-employed earnings, I’ll never get a residential loan.
Not True: Depending on your ability-to-repay, Freddie Mac may only require one year of tax returns from your new business.
I’ll still profit by selling one of my properties to my son – and he can get maximum FHA financing because I will co-sign and it will be his primary residence.
Incorrect Again: A parent/child profit-sharing relationship is deemed an “identity of interest” transaction, and the buyer is restricted to 75% loan-to-value when there is a non-occupying co-borrower.
It’s nice having our adult children home for the holidays. But if they are still living at home throughout the year, it may be because they have insufficient liquidity to afford a down payment for their own home.
If you need to help them out, you can either:
1. Gift them the down payment, or
2. Co-sign their loan
Under the first option, as long as your son/daughter can demonstrate they have had the funds in their bank account for two full monthly statement periods, your gift would be treated as if it were their own savings. And, the annual federal gift tax exclusion allows you to gift up to $14,000 in 2014 without it counting against your $5.34 million lifetime estate tax exemption.
If you elect to co-sign, then the down payment would come from you as a co-borrower (and so this would not be deemed a gift). But make sure the mortgage payments are made on time, because your credit will otherwise be adversely affected.
This is a crucial time of year if you or your children are in the market for a mortgage, particularly if self-employed. You will need to ensure that your 2014 tax return has sufficient income to support the required housing ratios. As an example, what you expense may make or break the ability for you to obtain the loan amount you need – because it is the “net after expense income” that counts when qualifying for a mortgage (not the gross income you generate).