You’re ready with a down payment for your home, but you need to borrow at least $150,000 to complete the purchase. Your parents offered to lend you the money—should you accept it?
As generous as your parents’ offer is, the decision may not be as easy as it first appears. Yes, dealing with family instead of a stranger at a financial institution has its advantages, but it also carries its own set of disadvantages and risks.
There will still be interest
If family members—or anyone—lend you $150,000 without interest, they risk negative tax consequences from the IRS. An interest-free loan for such a large sum will likely subject them to pay gift tax on the amount. The amount that triggers the gift tax has varied a bit from year to year, but $14,000 was the limit for the 2015 tax year; $150,000 will certainly require interest. Today’s interest rates, still near historic lows, diminish the advantage of the rate your parents will likely offer.
You will still need paperwork
This deal should not be consummated only with a handshake or simple note. Once you agree on reasonable terms, including at least an interest rate and payback schedule, reduce it to a properly crafted document. This step protects your parents from the IRS misconstruing their loan as a gift, and it also protects you against your parents altering the agreement—maybe they’d like an extra payment this month to fund that beach vacation. You should consult an accountant and an attorney to draw up the appropriate documents.
Things could get awkward
A loan from your parents or any family member affects everyone in the family, and it could hurt relationships. Your siblings may worry that your parents are overextended or vulnerable financially after parting with such a large sum. Maybe they’ll be annoyed Mom and Dad didn’t extend a similar offer to them. There will be additional scrutiny on all your purchases, vacations and other financial decisions—you bought a boat instead paying back Mom and Dad?
Every family is different, so maybe borrowing that money from your parents will work out fine. Smaller loans, especially those that fall beneath the gift threshold, are certainly a safer bet and could go a long way toward increasing your down payment and maybe improving terms from a lender.
Before you finalize any borrowing decision, take the time to consult a lender. You’ll never know what products are available unless you ask.
Selling your home can be one of life’s most exciting — and most stressful — events. If you’ve closed the deal and are ready to move, it’s crucial to share your change of address with the important people and institutions you deal with. Refer to this handy list to learn whom to communicate with and why.
The postal service. Your first priority should be to notify the post office of your move. It is as simple as going to the USPS official website and filling out a change of address request form. You can even sign up for mail forwarding, a free service that will forward mail to your new address for up to one year.
Utility companies. It is imperative to cancel all services, such as electric, gas, oil, cable, phone and internet. Taking your name off of these various accounts as soon as you close on your house will avoid any potential misunderstanding or billing mistakes.
DMV. Changing your address with the Division of Motor Vehicles is another important item for your checklist. This will ensure not only proper billing and record keeping, but it will give you a current piece of identification.
Insurance companies. You will need to cancel your homeowner’s insurance policy, and you will need to change the address on your vehicle and life policies as soon as possible to ensure there is no interruption in billing that could compromise your coverage.
Doctors. Keep your family doctors, dentists and other service providers abreast of your new address and contact information so that may always be able to reach you and so you’ll avoid any billing problems.
Banks and credit card companies. By the same token, notify your bank and credit card companies about your new address. Protect your identity by keeping your address private and ensuring that sensitive documents follow you to your new home.
Subscriptions. Change your address on newspaper and magazine subscriptions, as well as any on-line shopping sites that you frequently use, to make sure that any deliveries come to the correct address.
Friends and family. Last by certainly not least, communicate with family and friends about your new address. It will show that you care about them, and it will ensure that you will keep in touch beyond your smart phone!
When it comes to finding the best place for you and your family to live, safety should always be a priority.
If you’re trying to decide between living in the city or the country, you might be curious as to which is safer. It might seem logical that the quiet countryside is safer than a busy city, but a recent study suggests both settings have their challenges.
Translation? Homeowners and residents in both locations have a responsibility to take the proper precautions and support their families and communities.
According to a study published in the Annals of Emergency Medicine and reported on by Time.com’s Ecocentric blog, the risk of injury or death from either crime or accidents is a full 20% greater in the countryside than in the city.
For example, auto accidents were found to be significantly higher in the country, a factor primarily attributed to the longer distances country-dwellers must travel in their cars. On the other hand, cities fell short in the category of financial safety: The study suggests city-dwellers are much more likely to be victims of identity theft than country-dwellers.
This doesn’t mean you should make plans to flee either the country or the city. It simply points to the fact that safety is about preparation. Whether learning city streets or navigating rural roads, always keep safety in mind!
When you look for a home, you’re looking at factors such as price, location, décor and size. When a lender looks at the amount of mortgage loan you qualify for, he or she is only interested in finances.
The lender compares your monthly income to your monthly bills to determine your debt-to-income ratio. It’s pretty easy; the lender adds up your monthly debt payments and divides them by your gross monthly income.
For example, if you pay $1,100 a month in rent, $400 a month for a car loan, and $500 a month for the rest of your debts, your monthly debt payments equal $2,000. If you make $60,000 per year, your gross monthly income is $5,000. That would make your debt-to-income ratio 40 percent.
Lenders have determined that borrowers with a high debt-to-income ratio default more often than those borrowers with a low debt-to-income ratio. What qualifies as high or low? While there isn’t a fine line—all lenders are different—many lenders prefer a 43 percent or lower debt-to-income ratio.
If your debt situation resembles the above example, don’t expect to qualify for a loan that requires you to pay much more than $1,100 per month. That amount includes the mortgage loan payment as well as any points and insurance.
So, how much house can you afford? Well, only a lender can tell you for sure, as that ratio doesn’t translate easily to a purchase price. A loan’s interest rate and other terms can greatly affect the amount of money you can afford to borrow.
However, calculating your debt-to-income ratio is a good exercise when you start looking at mortgage loans. You’ll know whether your current housing costs are sustainable in a lender’s eyes, and how much additional money you could afford to allot toward a mortgage.
The VA home loan program is an incredible benefit for those who have served our country. This flexible financing option offers competitive interest rates and is one of only a few sources of no-downpayment home loans available today. Here’s something else you may not know: It’s designed to protect veterans by making sure the home they are purchasing meets certain standards.
The VA does this through an appraisal process. The goal is to ensure that veterans pay a fair price for their home and are purchasing a property that is structurally sound. There are generally two parts to VA appraisals:
Have questions about VA home loans? We’re here to help you understand this great benefit designed for those who have served their country!