How Mother and father Can Assist With Jumbo Mortgages

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It’s one thing to ask mom and dad to sign a car loan together. It’s harder to get them to co-sign a jumbo mortgage.

The practice is rare, but some lenders allow parents to help theirs Adult children are eligible for jumbo mortgagesexceeding compliant credit limits of $ 417,000 in most locations and $ 625,500 in high-priced areas like San Francisco. A typical scenario: A first-time home buyer whose salary is on a strong uptrend but hasn’t been in use long enough to meet the income requirements for buying property in an expensive area like New York, says Ray Rodriguez, regional mortgage sales manager for TD Bank, based in Cherry Hill, New Jersey, which provides loans in 15 east coast states.

TD Bank allows parents to co-sign because they feel more confident having affluent relative share liability on a mortgage, Rodriguez says. Other lenders, like Quicken Loans and Citi Mortgage, ban “non-inmate co-borrowers,” as they are called, because they want the person buying the house to live in the house.

Mathew Carson, a realtor with First Capital Group in San Francisco, said he hadn’t found a single lender in the Bay Area just last month to approve a jumbo mortgage for a co-borrower of a father, daughter, and son-in-law. Alternatively, he has seen customers split the total amount into parts, such as: B. a compliant loan with a second mortgage or home equity line of credit for the parent’s house, as compliant loans allow a non-roommate co-borrower. Another option: a cash gift from a parent can be used to increase the down payment and decrease the loan amount.

John Walsh, CEO of Total Mortgage Services in Milford, Connecticut, which lends in 34 states, offers a different strategy. Families could apply for an investment home mortgage, a loan product that allows roommates to share their home. The interest rates on these are usually only half a percentage point higher than on a jumbo mortgage, and with a higher down payment of 40%, for example, that difference could be as little as an eighth of a point, he says.

Sometimes become parents Buy an apartment building and rent one unit to a child, with the rental income from the other units covering the mortgage payments, Walsh added.

Once a property is classified as an investment, owners can also benefit from tax deductions for repairs and improvements, says Mary Canning, dean emeritus of the School of Taxation and Accounting at Golden Gate University in San Francisco.

When lenders allow a non-roommate co-borrower, additional restrictions sometimes apply. For example,

Bank of America

assumes that the owner is entitled to make the payments solely on the basis of his own income.

Wealthy families with accounts at private banks can be an exception. These institutions typically have decades of customer relationships, which gives them a greater level of convenience when a wealthy parent wants to share a mortgage together, says Mike McPartland, head of investment finance at Citi Private Bank North America.

Here are a few other factors to consider. As always, borrowers should consult a tax advisor or attorney about specific rules.

• Liability. If the child loses a job or misses monthly mortgage payments for any reason, the parent will not only be liable for the money owed, but it could also result in damaged credit.

• Estate issues. When a parent is both in ownership and in the mortgage (which is not always required of lenders), watch out for ownership status, says Lee Wagner, partner at White Plains, NY-based real estate firm Ziccardi & Rella. “Co-tenant with the right to survive” means that in the event of the death of one of the borrowers, ownership is transferred directly to the co-owner / couple. If instead the classification is simply “tenants shared”, the portion of deceased borrowers can be divided among other heirs such as siblings. In this case, the child’s co-owner may have to buy up his sibling’s shares or sell the property to settle claims, Wagner says.

• Tax advantages. If the annual or lifelong gift exemption limits are not exceeded, a greater tax benefit may come from a parent giving the child the mortgage payment. This gives the child a double benefit: tax-free money and mortgage interest deduction, says Ms. Canning.

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