Refinancing May Be Right For You
Parent PLUS loans get real complicated real fast. Thats why its always better to avoid them in the first place.
But dont worry. You still have options that will help you get closer to student loan freedom. It is possible to refinance your Parent PLUS loans. Youll save money in interest, pay it off faster, and simplify your life.
Dont wait and let debt payments continue to rob you of your future. See if you qualify today by checking out the only student loan refi company we trust.
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This Time Its Personal
This can be really difficult for Mom and Dad when they have always been the breadwinners. Because of ego, pride, and status, its tough when financial situations change.
Personal interactions can shift with economics. And, as always, many families are simply not models of social harmony in the best situations.
But, in spite of personal and financial issues that may be involved, its still possible to help parents. Here are some options to mention.
What Is Home Equity
Home equity is the difference between the value of your home and how much you owe on your mortgage.
For example, if your home is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 in home equity.
Your home equity goes up in two ways:
- as you pay down your mortgage
- if the value of your home increases
Be aware that you could lose your home if youre unable to repay a home equity loan.
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Cosigning On A Mortgage
The simplest way you can help your parents is by cosigning the mortgage, or signing your name alongside your parents’ on the mortgage documents, especially if they have low income. This wasn’t always the case, though, as it used to be uncommon for borrowers to need a cosigner. But when the housing market crashed, lenders tightened their underwriting policies, making it harder for lower-income individuals to qualify or get favorable terms.
Bear in mind that most lenders review the of all borrowers before offering a loan. As such, a cosigner won’t make much of a difference if your parents have poor credit or recently filed bankruptcy. But lenders typically combine the income of all the borrowers when determining the loan-to-value ratio so having a cosigner can make it easier to qualify for a larger loan.
Cosigning may help if your parents are older. That’s because when the childs name is on the title and designated as a joint tenant with the right of survivorship, this means the property can be immediately transferred after death, which eliminates a lengthy and complex probate process.
But regardless of whether you live in the home or not, youre equally responsible for the mortgage payments. If your parents fall behind a few years down the line, it will likely end up on your . Having a large loaneven if it’s paid on timecan also bring down your score and make it harder for you to get any credit for yourself.
Can I Be Added To The Mortgage Title
Your solicitor can actually draft an informal agreement for there to be a mortgage in your name registered on the property title but your interest in the property isnt protected because youre not the legal owner of the property.
Essentially, youre taking on part responsibility for the mortgage but youre not entitled to anything should the property be sold.
Thats why its essential you really consider the decision youre about to make with your parents. Family ties can break down.
Alternatively, sit down with your lender or speak with your mortgage broker about what you would like to do in taking over your parents mortgage.
Again, youll need to submit a new home loan application for joint ownership of the property and yuoll be liable for stamp duty for either transferring or changing the property title to include you.
Both you and your parents income, credit history and overall financial situation will need to assessed for serviceability.
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Is A Reverse Mortgage Refinance Right For You
There are many instances when borrowers consider a reverse mortgage refinance with a new reverse mortgage. Refinancing existing loans does make sense at times, and sometimes it does not.
Borrower should only consider refinancing their loan when it makes sense for their individual circumstances. Some homeowners will find that they may meet some or all of the conditions listed below, but dont need additional funds.
In those cases, a refinance is not warranted. For them, even though they qualify for additional funds, it might only mean that the borrowers would incur additional unnecessary costs.
Can I Give My Daughter My House With My Current Mortgage
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Parents give adult children their homes for many reasons, including as “pre-inheritance” gifts. In other cases, parents might give an adult son or daughter their home because the offspring can’t qualify for a mortgage or maybe they want to reduce their own costs. In cases in which parents give adult children their already mortgaged homes, things become a bit trickier. In fact, you may not be able to give your offspring your mortgaged home without jeopardizing the existing mortgage.
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How Does A Cosigner On A Mortgage Work
A cosigner also known as a non-occupant co-borrower is someone added to the mortgage application and other loan documents promising responsibility for the loan, but who doesnt get any rights to the property. A cosigner must have a stable income, a low debt-to-income ratio, and good credit in order to help qualify for a mortgage loan.
Krop says that financial advantages for a non-occupant co-borrower dont exist. But, if its for your adult child, you are providing the opportunity for them to own a home when no one else would give them the chance.
Ive only cosigned an auto loan for my brother-in-law, he adds. A car is a lot different than a home. But, he worked hard and made all the payments. We never had a problem.
When To Consider A Refinance Of Your Reverse Mortgage
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Taking Over Your Parents Mortgage: How Does It Work
There a number of steps you can take to help your parents with their mortgage in a way that protects both of your interests in the property.
Its essential to be open with your lender and its crucial you seek the professional help of a mortgage broker, a qualified solicitor and any other legal adviser.
Top Ways To Help Your Parents Buy A Home
The best way to help your parents buy a home is ultimately the one that causes the least amount of financial stress for everyone involved. Here are some of the key things you may want to keep in mind when deciding how to help your parents buy a home:
- A good credit score is crucial to secure the best interest rates. Consider the rates you’ll qualify for if you plan to cosign for your parents or if you intend to buy an investment property. Make sure you consider how cosigning could affect your credit if your parents can’t meet their financial obligations.
- Cost. There are different costs that may need to be paid upfront or on an ongoing basis. For example, gifting money toward a down payment is considered a one-time expense. But if you invest in a rental property, you’ll have to consider where mortgage payments, insurance, maintenance, and repairs fit into your budget.
- Long-term planning. Helping your parents buy a home can provide some financial relief in the short term, but consider what that may mean down the line. For example, what would happen to the home if you cosign and they move into a nursing home or pass away? If you hand over $50,000 for a down payment, would you be able to get that money back if they choose to sell the property or pass it down to you? Having these discussions can help you decide if assisting parents with a home purchase makes sense for everyone involved.
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Interest Rates And Fees If You Refinance Your Home
The interest rate on the refinanced part of your mortgage may be different from the interest rate on your original mortgage. You may also have to pay a new mortgage loan insurance premium.
You may have to pay administrative fees which include:
- appraisal fees
Your lender may have to change the terms of your original mortgage agreement.
Practical Strategies To Help
The next step is to decide how to provide the funds. Financial, legal and tax advisors can help determine the best approach, addressing questions such as:
- What will the tax implications be?
- What if the childs marriage or relationship breaks down?
- What if the child becomes ill or loses their job?
- What if the childs business fails?
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Protect The Family Dynamic
Parents with more than one child may need to consider whether they will be able to provide similar assistance to each of their children.
Cauchi recommends discussing with kids the fact that the bank of mum and dad is not limitless and what is a fair gift for each of the children.
One approach might be to keep a ledger of money given to each child which can be used to adjust what inheritance they get when the parents pass away, she suggests.
Parents need to strike a fine balance between supporting their children, and giving them too much, Dr Melkumian, a financial therapist and founder of US-based Financial Psychology Centre, says.
Ive worked with trust fund kids where they were completely taken care of from the get-go and unfortunately it hindered them greatly in their adulthood, in their professional lives, because everything was taken care of. Theyre not used to having a work ethic, he says.
Where that balance lies will be different for each family, but whatever the level of assistance, parents should consider documenting their reasons for giving, Dr Melkumian says.
The contents of such a document would vary from family to family: Overarching themes could be discussed such as: Are we buying this as a way to show our love for our child? Or is it also a practical step for our family and a legacy?.
Reverse Mortgage Refinance Eligibility
Both the HUD program and the private programs require you to have a significant equity position in your home to do a refinance of a reverse mortgage.
HUD generally requires borrowers to pass a 5-times benefit rule to qualify to refinance a reverse mortgage with a new reverse mortgage. This rule exists for both HUD and for proprietary or jumbo loans. However, some exceptions may be made.
The rule is explained below, and it protects borrowers from equity stripping, which are constant refinances that do not benefit the borrower but accrue fees. To meet the test, you must receive at least 10%of the new principal limit in additional reverse mortgage proceeds for the HUD HECM to HECM refinance.
This would mean that if your Principal Limit is $300,000, you would have to receive at least $30,000 in new proceeds from the refinance loan in addition to the new proceeds being at least 5 times the costs of the loan.
Preferably your interest rate or margin should be improved, but in a rising interest rate market, this is not necessary.
Exceptions may be made when the loan itself protects or significantly benefits the borrowers.
Such a case would be adding a non-borrowing spouse protection to your loan.
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Should I Refinance My Mortgage
Determining whether refinancing is the right move for your family’s finances really comes down to sorting through a variety of questions and considerations linked to the overall cost of the refinance, the interest rate available on the new mortgage, your goals for refinancing, and how long your family intends to stay in the home that’s being refinanced. Because of all the variables involved, there is no one right answer to the question: Does it make sense to refinance?
“For someone who is focused on lowering monthly payments as much as possible, the answer will be very different than for another person who is focused on making sure their home is paid off before they retire in 10 years,” says Heather McRae, senior loan officer for Chicago-based CFS Mortgage. “The tangible benefit for one person may not be much of a benefit at all for the other. You have to know what your goal is for the property.”
Alternatives To A Mortgage Transfer
Instead of transferring a mortgage, there may be better options to pursue. Some options include:
Buying the home from the original borrower the person who wishes to assume the loan will apply for a new mortgage and buy the home from the previous borrower. However, this means dealing with new loan terms and interest rates
Add a second borrower this involves adding the new borrower to the loan. However, it wont remove the original borrower so theyll remain liable for the debt, making this a less than ideal solution.
Refinancing and adding a borrower refinancing your mortgage and adding a second borrower lets you adjust the terms of the loan and its rate. It may be easier to add another borrower by refinancing. However, this also has the drawback of not freeing the original borrower from their liability for the loan.
Unofficial transfers have the new borrower send payments to the original borrower, who then pays the loan. This is a bad idea because the initial borrower is liable for the debt and has little recourse if the new borrower stops paying. It may also break the terms of the mortgage, especially if the original borrower moves out.
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Can You Just Take Over The Monthly Repayments
Yes, you can, and you dont need to disclose this to the lender either.
As long as the mortgage repayments are being made and the property title hasnt changed, the lender is happy.
Its more costly to the lender to sell the property in case of default than to prevent you from taking over your parents mortgage by making repayments.
Many sons or daughters in this situation choose to do this not only to help their parents but based on the understanding that the property will be left to them in the estate.
You should sit down with a solicitor and your parents to ensure that this is stated in the will of the estate.
Can My Parents Help Me With My Mortgage
There are plenty of reasons to look to the Bank of Mom & Dad for help in securing a mortgage, if you have that option. Today’s helicopter’ parents view helping their children launch into adulthood differently than those of the past. The average renter is spending a large portion of their after-tax income on rent. Parents would rather help their children get settled while building equity in a home.
But what are the rules for parents when it comes to your mortgage?
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Purchasing Property For Your Children
Another strategy is for a wealthy parent to just purchase a home outright and give it to their child. Perhaps your child is a college student who doesnât make much money and canât realistically take on a mortgage. Perhaps they are just not at a point in their life where they can take on the financial responsibility of home ownership.
Whatever the situation, itâs not as easy as just buying a house and giving it to your child. If the house is valued at over $13,000, and it likely is, a 35% gift tax would be triggered, which would make the whole thing not worth it. Fortunately, there are strategies to get around the tax issue. Namely, what if you only give your child an interest in the house worth $13,000 a year up until the total amount adds up to the value of the house?
Under current law, the maximum gift is $13,000. So, if both parents give that amount per year to the child and his or her spouse, itâs equal to $52,000. Give them a deed for whatever percentage of the property that amount represents yearly until the couple owns the whole property in their name. Until the child owns the property, they have to pay you rent based on your ownership percentage, and then you would get the tax benefits.
