Best way to fund down payment?

[kale1986]

Hey everyone,

I went through a divorce a few years back and couldn’t even ask my uncles for a mortgage down payment, since it was too awkward. So, I am building on this idea to create a product. I want a way that people can get crowd-lending from their friends and families circles and wanted to run some thoughts by you:

Basically,

1. The platform will help you create a short summary of borrowing info including: use of money, borrowing rate, duration and send it to your friends & family members to collect any lending interest.

2. People within your friend & family circle can refer someone to you in their circle who has a lending interest and get a finder fee.

3. The platform will match you with interested lenders.

4. The platform will streamline the documentation/contract process to close the deal. Basically everything will be formalized for you.

This is a preliminary thought based on a premise that it is easier to get loans from our friends and families at a cheaper rate rather than going through a lengthy qualification with a lending platform paying high flying rates.Any thoughts and feedback would be greatly appreciated!

Kale

[MortgageMama]

You won't likely get many replys on this from lenders but I will just caution you on this... Do your homework first. "Crowd Funding" is not something the the traditional (or even non-traditional) lenders allow for down payment funds.. Check Fannie/Freddie and FHA/VA guidelines first. You will see that "gifts" are typically only allowed by family members. Loans = NO. You may be better advised to look into the vast list of state sponsored down payment grant programs as you look for opportunities to give back.

[kale1986]

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@MortgageMama wrote:

You won't likely get many replys on this from lenders but I will just caution you on this... Do your homework first. "Crowd Funding" is not something the the traditional (or even non-traditional) lenders allow for down payment funds.. Check Fannie/Freddie and FHA/VA guidelines first. You will see that "gifts" are typically only allowed by family members. Loans = NO. You may be better advised to look into the vast list of state sponsored down payment grant programs as you look for opportunities to give back.

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Thanks for your feedback! Yea, I know typically you can't get a loan for your down payment as it would be factored into your debt to income ratio when it comes to mortgage application. 

I was thinking maybe ppl who have PMI as they do not have 20% down payment can get funding from their friends and families to pay it off?

What do you think?

[MortgageMama]

Well, PMI isn't an item that can be paid off. There isn't a dollar amount involved. Monthly PMI automatically ends when the principal balance reaches 78% of the original value of the home. Removing PMI can be requested when the principal balance reaches 80%. One needs to contact their servicer to find out the proceedure. It likely would require an appraisal. Below is a brief copy of the CFPB rules on PMI followed by a link to their site for complete details.

Request PMI cancellation

You have the right to request that your servicer cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. 

Automatic PMI termination

Even if you don’t ask your servicer to cancel PMI, your servicer still must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. 

CFPB PMI Termination 

Hope this info helps!

[kale1986]

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@MortgageMama wrote:

Well, PMI isn't an item that can be paid off. There isn't a dollar amount involved. Monthly PMI automatically ends when the principal balance reaches 78% of the original value of the home. Removing PMI can be requested when the principal balance reaches 80%. One needs to contact their servicer to find out the proceedure. It likely would require an appraisal. Below is a brief copy of the CFPB rules on PMI followed by a link to their site for complete details.

Request PMI cancellation

You have the right to request that your servicer cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. 

Automatic PMI termination

Even if you don’t ask your servicer to cancel PMI, your servicer still must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. 

CFPB PMI Termination 

Hope this info helps!

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Yea, this is super helpful! I am thinking ppl can crowd-borrow from their friends & families network to increase their equity stake to 20 percent in order to remove PMI and avoid monthly PMI cost. What's your take on this? Do ppl with PMI generally want to get rid of it ASAP?

[ShanetheMortgageMan]

No one likes PMI, but it has become more affordable for borrowers with higher credit scores. 

For example with a 680 score and 5% down the PMI rate at one provider is .54% of the loan amount per year, so on a $475k loan amount that equates to $213.75/mo.  With a 700 score that PMI rate drops to .45% ($178.13/mo), with a 720 it drops to .37% ($146.46/mo), with a 740 it drops to .28% ($110.83/mo), with a 760+ it drops to .23% ($91.04).  With 10% down and a 680 score it's .40%, with a 700 it's .33%, with a 720 it's .27%, with a 740 it's .20%, and 760+ it's .17%.

So someone would have to weigh out the interest rate that they'd be paying on your loan option vs. the increased cost of PMI to determine which route is more economical.  Also have to compare how long they'd have PMI on the mortgage (because it will drop off) vs. how long they'd have your loan for, plus take into consideration how long they plan on owning the home for (if they see themselves in this mortgage until it's paid off, then there will be many years of them not having PMI and also be paying interest on your loan).  So you'd have to run the numbers on some situations to determine where your option provides benefit.