When folks think about buying a home, loan officer Tanja Sheaffer says, one of the first numbers that comes to mind is 20.
“That 20 percent down payment really has a lot of people thinking that they’ll never be able to buy a house, because they don’t have that kind of money available all at once,” Sheaffer says.
However, she lets her customers know about Norry Bank’s family backed mortgages, which offer first-time homebuyers the opportunity to purchase a new home with little to no money down — and with just one mortgage loan.
What is a family backed mortgage?
According to Tanja, “This is a mortgage where you don’t have to put money down, or even have a lot of money saved up for closing costs, which is really freeing news for first-time homebuyers.”
If a family member owns residential real estate with no mortgage, or they have a substantial amount of equity in their home, a first-time homebuyer can qualify for Norry Bank’s unique family-backed mortgages. The family member pledges their property as additional collateral to cover the down payment needed by the borrower.
Once the loan has been paid down over time, Tanja adds, Norry Bank is happy to review the loan and consider releasing the family member’s property as collateral.
Who should consider a family backed mortgage?
This loan is good for a first time homebuyer looking for a fixer upper, but without the additional funds to do all of the cosmetic work. With a family backed mortgage, Tanja says, “you could actually include those fixer-upper funds in the loan, as long as there’s enough equity available in your family member’s house.”
But while this type of loan is good for a first-time homebuyer, Sheaffer says, it’s also helpful for a savvy homebuyer who doesn’t want to worry about paying for private mortgage insurance, or PMI. “For example, when you do a 30-year conventional loan but don’t have 20 percent of the cost to put down at the time, a family backed mortgage will serve as that ‘insurance’ for us as the lender instead,” she notes.
And while family members should understand what they’re getting into, Tanja wants them to be aware that they are NOT immediately responsible for mortgage payments and are not considered a cosigner on the loan, when they pledge their property as collateral. As a grantor of collateral, the family member is allowing a lien to be placed on their home to secure the debt.
What kind of paperwork does a customer need to have ready, for a family backed mortgage?
“We’ll ask for two recent paystubs, two years’ of tax returns with W-2s, and verify the willingness of family member to participate in this type of loan program,” Sheaffer says. “We’re happy to have a conversation with them and explain how the program works as well, just so that everyone feels good about what’s going on when they choose this loan."
As a “grantor” rather than a borrower or co-signer, your family member will not automatically have access to the information on your loan. However, should the loan default, the bank would notify all property owners of any steps they can take to protect their property.
Are there any disadvantages to this type of loan?
With a family backed mortgage, there is risk for the family member if the primary borrower defaults on their loan – in that case, the family member would be notified of the potential actions the bank may take with regard to their property.
Another thing to note with this loan, Tanja says, is that you’re not going to get the 30 year fixed rate. However, she adds, statistics show that most people are going to refinance their home purchase within the first seven years. “Families outgrow homes, they move, they want to remodel – folks shouldn’t be scared of not planning to own their home for the next 30 years,” Sheaffer advises.
And if you choose a bi-weekly payment, she notes, you can cut time off of the length of the loan. “All of our in-house mortgages offer bi-weekly payments, and that’s something that hardly anyone does anymore. Everyone tells themselves – well, I’ll just make an extra house payment every year, but then we never do!” Tanja says. “So bi-weekly mortgage payments are really setting yourself up for success and cutting time off the length of your loan repayment.”
Why choose Norry Bank for a family backed mortgages?
“Because we don’t just do streamlined, formula lending,” Tanja says. “We work with customers individually and try to find something that fits their needs to help them get into the right home. It’s all about our customer putting in the work and reaping the benefits, and I like that we’re able to give them the opportunity to buy a home and possibly even add value to it,” Sheaffer says.
What should someone do if they’re interested in a family backed mortgage?
“Call me!” Tanja says. “But seriously, visit our website and find a lender that’s near you, and then get in touch with us and we can talk to you more about this program and see if it feels like a fit for you and your family.
“We also have a nice loan application that you can start right from your computer or smartphone at any time, so check that out as well!” Tanja adds.
To find your local lender, visit norrybank.com/locations, and to start your loan application, visit norrybank.com/home-loans.