Gift Funds

When you have a client with excellent credit, but he/she is depending on a gift for the funds needed to close (down payment and closing costs), we can do a conventional loan up to the maximum amounts when a gift is provided.

In the past, borrowers have been required to put a certain amount of their own funds (3% or 5% depending on the loan type) when doing a conventional loan. So many times, an FHA loan is suggested in that scenario (FHA has always allowed the full amount of the up-front money to come from a gift). However, the advantage with the conventional loan is that the mortgage insurance will likely be much less expensive going that route versus the typical FHA.

Last week, we had a client buying a $200,000 home. She had great credit and her parents were providing a gift for her needed funds. It had been recommended to her that she take out an FHA loan. We showed her that by putting an extra 1.5% down ($3,000 in this case), she would be able to significantly lower her payment. How? Well, the monthly mortgage insurance payment would be $95 per month on a conventional loan versus $217 per month on the FHA. Granted, the conventional loan in this case would require an additional $3,000 down, but with a monthly savings of $122, her parents were more than happy to give her the additional amount needed.

Another great benefit with the conventional loan is she will have the ability to remove the Mortgage Insurance once her loan balance has dropped to 80% loan to value. FHA will require the Mortgage Insurance to be paid for the life of the loan.

As fast as things change in our industry, sometimes it is good to be reminded of simple strategies like this. Make it a great week!

The Week Ahead
Next week, the JOLTS report, measuring job openings and labor turnover rates, will be released on Tuesday. The FOMC Minutes from the March 19 Fed meeting will come out on Wednesday. These detailed Minutes provide additional insight into the debate between Fed officials. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Friday. Import Prices and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

The Week That Was
This week, all eyes were on Friday's key monthly Employment report. Adding to the focus, Fed Chair Janet Yellen emphasized on Monday that future Fed policy will primarily be determined by the performance of the labor market. The jobs data was right in line with expectations, and mortgage rates ended the week a little lower.

After a rough start to the year, partly due to unusually severe winter weather, job growth has returned to the levels expected by most economists and the Fed. The economy added 192K jobs in March, and upward revisions to the data from the prior two months added another 37K jobs. Anticipating even stronger data, which would be more inflationary, investors had pushed mortgage rates a little higher earlier in the week. After the report was released, mortgage rates completely reversed those increases.

The biggest surprise in the jobs data may have been the surge in the labor force. The Unemployment Rate remained unchanged at 6.7%, above the consensus of 6.6%, but the flat reading was due to an unexpectedly large number of people entering the labor force. The Unemployment Rate measures the percentage of people who want a job but are unable to find one. Growth in the labor force is a sign of an improving labor market.