July 22, 2019
Our brokers have helped many clients buy homes for or with their kids. It’s a good thing! Orion’s experienced brokers love to explain the process. If a client’s child wants to purchase a home and a parent want to help make that happen, you’ll want to know the factors involved to prepare them for the journey. Orion’s AEs tell clients that there are three “must haves” to qualify for a mortgage: income, credit, and cash to close.
A parent can assist with income qualifying by co-signing on the mortgage with Orion. This will require combining all parties’ income and debt obligations which includes adding the co-signers existing housing payment including taxes, insurance, etc. This inclusion will increase the debt to income ratio (DTI) which can sometimes be the barrier for a co-signer assisting. Orion sees many examples where parents are earning lots of money, but kids are spending a lot.
It is important for anyone co-signing to know and acknowledge that they are 100% responsible for 100% of the payment. If your client co-signs it is highly recommended they obtain on-line access to Orion’s website so they can check in every month to make sure the payment has been made and all is well. And if your client’s servicing is transferred elsewhere, be sure to tell them to obtain access with the new company as well.
If your parent client’s credit scores are hovering around 800, and their client kid's credit score is mid-500's, the 800 score is not relevant. Lenders use the lowest-middle score of all borrowers. The best way a parent can assist a child with the credit aspect of qualifying for a mortgage is to pay down or off some of the items on the credit report. Or better yet, instruct the client child to pay it down. For instance, paying an auto loan down to below 10 months of payments will omit that payment as a factor in the DTI for qualifying. Raising a credit score fifteen or twenty points can sometimes result in a lower interest rate and easier qualifying at Orion.
The most common form of assistance from parents is a gift of cash for down payment, closing costs, credit relief, wherever needed. You, as their broker, should be aware there are specific guidelines that must be followed if there is a cash contribution to the borrowers. The funds must be from a relative or significant other and these funds cannot be borrowed, for instance. Talk to your Orion AE about other criteria.
Orion will require proof of a gift. This entails verifying the donor had the funds to gift, proof the funds transferred from the verified donor account to the borrower's account and a gift letter indicating there is no expectation of repayment.
If this sounds complicated, don’t worry. We’re experts at helping you help your clients, and their children, purchase a home.