There is a little-known mortgage program that could provide the vehicle for the right person to get into a home.  If a person sells their home to another for less than the fair market value, the difference in the appraised value and the sales price is considered a gift of equity for the buyer.

FHA requires that borrowers receive gifts of equity only from family members transferring title to the borrower. 

An appraisal is required to determine the value of the home.  The sales price is subtracted from the appraised value to determine the equity to be gifted.  If a home appraises for $300,000 when the owner will sell it for $250,000, the gift is $50,000.

The gift is applied to the down payment.  In this example, the borrower would have to qualify for a $250,000 mortgage which would require private mortgage insurance because a 20% down payment on a $300,000 home would be $60,000.  If the buyer had an additional $10,000 in cash to put down, the PMI would not be required, and the monthly payments would be lower.

The seller would need to provide a gift letter stating the amount of the gift, the date the gift, and that no repayment is expected or required.  It also needs to have the donor's name, address, phone, email and relationship to the buyer.  In addition, the settlement statement will need to show the gift being credited from the seller to the buyer.  The lender may require additional documentation.

​Beginning in 2018, the annual gift tax exemption is increased to $15,000 per person per year and lifetime exemption to $5.6 million.  The fact that the $50,000 exceeds the individual amount doesn't mean there will necessarily be any gift tax due now.  The seller should consult their tax professional.
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It may be natural for first-time buyers to be unsure of the process of buying a home because they haven't been through it before but even repeat buyers need to know changes that have taken place since the financial housing crisis.

The steps in the home buying process are predictable and generally follow the same pattern.  It certainly makes the move stay on schedule when you know all the different things that must be done to get to the closing.
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• In the initial interview with your real estate professional, you share the things you want and need in a home, discuss available financing and learn how your agent can represent you in the transaction.
• The pre-approval step is essential for anyone using a mortgage to purchase a home to assure that they're looking at the right price of homes and so they'll know what they can qualify for and what the interest will be.
• Even with lower than normal inventory, it is difficult to stay up-to-date with the homes currently for sale and the new one just coming on the market.  Technology has simplified this process, but the buyer needs to implement them.
• Showings can be accommodated online through virtual tours, drive-bys and finally, a personal tour through the home.  Your real estate professional can work with you to see all the homes in the market through REALTORS?, builders or for sale by owners.
• When a home has been identified, an offer is written and negotiation over price, condition and terms takes place.
• A contract is a fully negotiated, written agreement.
• Escrow is opened to deposit the earnest money from the buyer as a sign they're acting in good faith.  The title search is also started so that clear title can be conveyed from the seller to the buyer and that the lender will have a valid lien on the property.
• 88% of home sales involve a mortgage.  The lender will require an appraisal to be sure that the home can serve as partial collateral for the loan.  If the buyer has been pre-approved, the verifications will be updated to be certain that they're still valid.  The entire loan package when completed, is sent to underwriting for final approval.
• When the contract is completed, at the same time the title search and mortgage approval is being worked on, the buyer will arrange for any inspections that were called for in the contract.
• After all contingencies have been completed, the transaction goes to settlement where all of the necessary papers are signed, and the balance of the buyer's money is paid.  This is where title transfers from the seller to the buyer.
• Possession occurs according to the sales contract.

One of the responsibilities of your real estate professional is to make sure that things are done in a timely manner so that the transaction will close according to the agreement on time and without unforeseen or unnecessary problems.

Even if you're not ready to buy or start looking yet, you need to be assembling your team of professionals.  Let us know and we'll send you our recommendations, so you can read about them on their websites.

If you have any questions, call us at 208.946.7816, we're happy to help.  Informed buyers lead to satisfied homeowners and that is better for everyone involved.