Recasting/Re-amortizing a loan

[panerd]

So details here may be a bit confusing but here goes...

My in-laws gifted us some money to help us pay for a down payment on a new house. Some of the gifts were to our children to maximize the money they can give without tax consequences. Anyways due to another fun sidebar in the Patriot Act (for what it's worth the broker may just be blaming the Patriot Act for convenience) they will not accept the money given to our children towards our down payment. Our broker's stance was "What's the big deal? Just refi in a year with the rest of the money." Sounds great until you look at the thousands of dollars in wasted interest with this plan. From talking with friends with jobs in finance and reading online it looks like there is something called recasting a loan that the banks don't like to talk about. You basically pay a small fee ($250) and apply your payment and they reamortize your loan for you.

Anyone ever do this? Do I need to get it written in at closing? Can I write it in at closing?

Clearly we would have waited to make an offer on a house if we foresaw these problems but now we are kind of stuck between a rock and a hard place.

[CU Tiger]

Gift money that hasnt seasoned is difficult to apply as a down payment, though not impossible.

However if you use your gift and the children's gift for the same purpose (down payment) then you are pretty clearly guilty of positioning, tax evasion and fraud. DO NOT DO THAT. It will get caught.

The first question is can you afford the mortgage payment without lowering it? If you can then this is easy. If you can't I can post some other scenarios and thoughts, but I'll assume for now this is just a "I dont want to waste money" conversation and not a "I cant make the payment" conversation.

Close as is without counting the kids money into it.
Pay 1 or 2 months normal.
Then on the 3rd payment send in the kids money and specifically note it as for principle only. This will save you the "thousands in interest" though it will not rework your payment. I would then send in $5 extra each month. After a year most lenders will re-cast it for free if you have consistently paid ahead of schedule. Even if they dont you are still saving the interest. The back end amortization works even if the payments dont change.

Now what Id bet you is actually happening is one of 2 things.

1) Mortgage brokers are paid based off of the initial principle of the loan. If the down payment is sizeable you may be cutting into the brokers commission check.
2) If the paperwork is already done, re-doing it costs time and money.

[panerd]

Originally Posted by CU Tiger

Gift money that hasnt seasoned is difficult to apply as a down payment, though not impossible.

However if you use your gift and the children's gift for the same purpose (down payment) then you are pretty clearly guilty of positioning, tax evasion and fraud. DO NOT DO THAT. It will get caught.

The first question is can you afford the mortgage payment without lowering it? If you can then this is easy. If you can't I can post some other scenarios and thoughts, but I'll assume for now this is just a "I dont want to waste money" conversation and not a "I cant make the payment" conversation.

Close as is without counting the kids money into it.
Pay 1 or 2 months normal.
Then on the 3rd payment send in the kids money and specifically note it as for principle only. This will save you the "thousands in interest" though it will not rework your payment. I would then send in $5 extra each month. After a year most lenders will re-cast it for free if you have consistently paid ahead of schedule. Even if they dont you are still saving the interest. The back end amortization works even if the payments dont change.

Now what Id bet you is actually happening is one of 2 things.

1) Mortgage brokers are paid based off of the initial principle of the loan. If the down payment is sizeable you may be cutting into the brokers commission check.
2) If the paperwork is already done, re-doing it costs time and money.

I don't think there is any fraud involved. The gifts were all the 14K (actually 13.5K to cover other birthday gifts etc) allowed by federal guidelines. Her parent's tax attorneys said this is perfectly legal and since the kids are 2,2, and 4 that this money could be used for a down payment on the house. You are correct though that the lender doesn't like the appearance of $130,000 in our account overnight and had we waited an additional 3-4 months they would have not had to deal with it.

The monthly payment is an issue. It is significantly higher ($400 month) and will definitely accrue debt the next several years with all three of them in pre-school if not corrected. I think the broker is kind of thinking what you are that we shouldn't get a loan that we can't afford it but I never asked for a 180K loan, I wanted a 100K loan and was told when we were pre-approved that the gift money was not an issue.

The one year difference is $2944 in equity which isn't something small that I feel like waiting on to be corrected. Hopefully interest rates would still be low and I could refinace or something else in a year but again $3000 is a lot of money that could go to six months of one of the twin's preschool payments instead of a larger loan.

EDIT: I appreciate your help and input. Re-reading my post it may have seemed like I was upset with your answer if that is how you read it I think I am just upset with the situation and maybe coming across this way to you.

[JPhillips]

We received a gift, but not to our daughter. We were upfront about it in the mortgage process and had to fill out paperwork with the lender and the feds, but there were no problems.

Do you have an attorney for the closing process? If so, I'd check all of it with them.

[CU Tiger]

Panerd - No worries, I didnt take it bad in any way.

I know how frustrating closings, mortgages and home buying can be.

I'd check and double check on the gift thing. I lived it and it cost me. I had an "official" (intentionally vague) rule that my gifts to children were "posturing and intentionally manipulating the system to hide gifts given to the parent. I had to pay back taxes and penalties on the children gift amounts. Maybe their attorney is better. Just going off my history.

The equity/ 1 year difference is what I think you are missing here. If you simply give them the full amount as part of payment 1 that is deducted from the balance calculations immediately, even if your payment doesn't change. Interest does not accrue on paid balance. Period. Unless there is a pre-payment penalty clause in the mortgage. If there is you need a new mortgage anyway, as a refi would trigger a pre payment penalty.

Does the point I am making about the amortization table make sense? About interest not acruing if you pay early? If not I can long hand it out but didnt want to post a book if you get that part.

[panerd]

Originally Posted by CU Tiger

Panerd - No worries, I didnt take it bad in any way.

I know how frustrating closings, mortgages and home buying can be.

I'd check and double check on the gift thing. I lived it and it cost me. I had an "official" (intentionally vague) rule that my gifts to children were "posturing and intentionally manipulating the system to hide gifts given to the parent. I had to pay back taxes and penalties on the children gift amounts. Maybe their attorney is better. Just going off my history.

The equity/ 1 year difference is what I think you are missing here. If you simply give them the full amount as part of payment 1 that is deducted from the balance calculations immediately, even if your payment doesn't change. Interest does not accrue on paid balance. Period. Unless there is a pre-payment penalty clause in the mortgage. If there is you need a new mortgage anyway, as a refi would trigger a pre payment penalty.

Does the point I am making about the amortization table make sense? About interest not acruing if you pay early? If not I can long hand it out but didnt want to post a book if you get that part.

I guess what I am saying is that I want to redo the loan (either through a refi or recasting) to create a lower monthly payment. I understand paying the additional principal on the mortgage will effectively make the two loans identical. One with higher monthly payments but a shorter loan period and the other with 30 years and lower monthly payments. My problem is I want to keep the money out in case I need to use it for a better refi or for a loan recasting because the worst case scenario is paying a huge amount month 3 and then not being able to restructure the loan at all.

Even if it all works out doing the month 3 payment I will still have a net loss of equity of about $500 + cost of refi or recast which sucks because I believe it is them misinterpreting the gift tax laws.

Does that make sense?

[panerd]

Originally Posted by JPhillips

We received a gift, but not to our daughter. We were upfront about it in the mortgage process and had to fill out paperwork with the lender and the feds, but there were no problems.

Do you have an attorney for the closing process? If so, I'd check all of it with them.

We both received gifts as well. Basically instead of gifting us a lump $135,000 they gifted us each $13,500 from each parent to myself, my wife, and my three kids. Otherwise they we will take a $130,000 hit on their estate tax. (Technically I guess an $81,000 hit)

So they are letting us apply $54,000 just not the other $81,000. With all the paperwork and everything. Our attorney thinks they are wrong but it is the lender's money and they don't have to lend us anything.

I know some might say cry me a river on being gifted that amount and worrying about it but if I wait until next year to refinance the loan down we do take a hit of about $4000 in lost equity.

[JPhillips]

Have you signed the mortgage paperwork? If not, you can always talk to someone else and see what they say.

[CU Tiger]

I think your numbers are off honestly.
I cant imagine the difference is that high.

Of course we dont have all the details, but unless you are in a very bad rate there just isnt a $4k delta. $500 for a year? Yeah, maybe I suppose.

But that aside...

To fix your problem. Like all things in life mortgages are negotiable. If this lender wont help another will. Shop around. Find a lender who will do the deal you want. If you are up against a deadline then your offer I'm sure had a financing contingency, and it should have had the word suitable. This financing isnt suitable. Find others and you can give the seller the choice of extending the closing or you find another home.

Again, I'm not trying to get in your business but I'd want a lawyer to put it in writing that they approve of what you are doing and will represent you free of charge if the IRS comes calling. Because the potential here is the IRS will seize control of your home and all your accounts day one as a shelter transaction and you wont live there until they settle the claim nor have access to your accounts.

Having lived through an IRS reaming I avoid them at all costs....and I was found to have done no wrong doing in the matter they froze me over. They did find the above transaction I referenced 8 months in and that was the ONLY thing they found wrong in my dealings...

[panerd]

Originally Posted by CU Tiger

I think your numbers are off honestly.
I cant imagine the difference is that high.

Of course we dont have all the details, but unless you are in a very bad rate there just isnt a $4k delta. $500 for a year? Yeah, maybe I suppose.

But that aside...

To fix your problem. Like all things in life mortgages are negotiable. If this lender wont help another will. Shop around. Find a lender who will do the deal you want. If you are up against a deadline then your offer I'm sure had a financing contingency, and it should have had the word suitable. This financing isnt suitable. Find others and you can give the seller the choice of extending the closing or you find another home.

Again, I'm not trying to get in your business but I'd want a lawyer to put it in writing that they approve of what you are doing and will represent you free of charge if the IRS comes calling. Because the potential here is the IRS will seize control of your home and all your accounts day one as a shelter transaction and you wont live there until they settle the claim nor have access to your accounts.

Having lived through an IRS reaming I avoid them at all costs....and I was found to have done no wrong doing in the matter they froze me over. They did find the above transaction I referenced 8 months in and that was the ONLY thing they found wrong in my dealings...

Maybe my math is missing something but here goes (4.25% fixed 30 year)...

Loan 1: $185 down, $100 loan. End of year 1: Net equity in home $186,692
Loan 2: $115 down, $170 loan. (We actually even used 11K more of our money so the difference is a little bigger) End of year 1: Net equity in home $117,876. Cash left on hand (after using the cash to pay $344 monthly mortgage difference) $65872. Total of $183,748.

Maybe your delta isn't factoring the $344 but that has to come from cash on hand right to compare apples to apples right?

To both you and JPhillips... The house closing is Jan 18. Didn't think we could get new financing in that short amount of time and basically from what you have said no lender will probably like the kid thing no matter who I use even though it seems completely legal. We love the house and so backing out would be an option but not the one we want to do. In that case we will just wait until the spring and bring the full $190000 to the table.

You still don't think a recast is the best option though for reseting the monthly payment?

[CU Tiger]

I dont think you will get a lender to do it that fast. If they do they will likely screw it up. lol

[Flasch186]

the answer is YES!

There is a recasting loan wherein the payment will drop but the rate will not!

Call your lender or talk to the seller and see if you can shop the mortgage to someone who'll do it and even if you have to pay the seller's mortgage for a few months while getting this to occur, it may be worth it. IF your lender cant do it, talk to a different lender. Usually there are some minimum time frames, ie. PMI must be paid for 6 months or whatever but YES this is a great tool to use when someone closes on their new home and has not yet sold their old home however it sounds like it's in essence the same thing: Equity to arrive later being used on the new loan.

Some lenders can do a loan in 20 days (the holidays may be an issue)

[Marc Vaughan]

Can you not just make over-payments and pay your loan off early because of that? (I've taken that approach in the past) ... it won't reduce your payments but has a very pleasant effect obviously.

Otherwise can you put the amount into a savings account and pay part of your mortgage from that? - probably not as inefficient as doing a remortgage and paying $000 in fees?

[Glengoyne]

Mrs. G here:

Our 2 bit experience...

October 2008

Mr. G's sister "gave" us $15K to help cover down and closing costs for our place... "Gave" because that is what we told the lending company. We have since repaid. That money was no where to be seen until 2 days before closing... not in our account. Nowhere in our records. So, I don't really see how where the money is coming from is an issue (things may have changed in the last 8 years though).

Also, we signed the first papers Oct 10 ish. I thought it was the 11th but looking at a calendar that's a Saturday so probably not. We received our keys October 30. That includes Columbus day, whether or not that's a holiday is debatable.

Our house was an REO property so at the end of 2008, they were motivated to get cash, so that may have had an effect.

All this to say, I don't see why any of your issues are issues. Maybe you need to reevaluate the person you are working with?

[bhlloy]

Pretty sure things have definitely changed since 2008. My sister and brother in law almost lost a house 2 years back because of a similar gift and were told that they majorly tightened up. They wanted tax returns, bank statements and IIRC some sort of notarized statement from the gifter (which was a problem for reasons I won't go into) and my wife and I had to stand in and provide the shortfall and all those things for the deal to hold up

[JPhillips]

Originally Posted by bhlloy

They wanted tax returns, bank statements and IIRC some sort of notarized statement from the gifter

This was my experience in 2013.

[Flasch186]

Originally Posted by Glengoyne

Mrs. G here:

Our 2 bit experience...

October 2008

Mr. G's sister "gave" us $15K to help cover down and closing costs for our place... "Gave" because that is what we told the lending company. We have since repaid. That money was no where to be seen until 2 days before closing... not in our account. Nowhere in our records. So, I don't really see how where the money is coming from is an issue (things may have changed in the last 8 years though).

Those are gift funds which were likely accompanied by a Gift Letter so that is the tracking...

[panerd]

Yeah they have definitely gotten more thorough. They mention the Patriot Act but I'm guessing it is the 2007 housing crash as well unless they wrote it into the Patriot Act. The fact is her parents could have given us any amount they want but once they exceed 14,000 a person it gets deducted from their maximum their estate can give.

I just don't like the $1300ish monthly payment when I know I could get a $900ish monthly payment with the full amount of money had it been seasoned ahead of time. $400/month is a lot of additional money when you have twins in diapers and pre-school.

[digamma]

It's both.

If you really wanted to do this without raising any lender suspicion, you'd need to do it at least 60 days prior to filing your mortgage application. The standard now is to ask for two months of bank statements. Large deposits are looked at both from a credit worthiness perspective and a KYC/Patriot Act perspective to ensure the money isn't being laundered from a bad actor.

[panerd]

I think we are going to walk away from this one. The house definitely had some issues and the sellers seem to think a $285,000 house can be sold with the same conditions as an "AS IS" foreclosure but a part of me actually wonders how much this loan had to do with it. I'm unhappy with everyone involved. Myself for not doing my homework clearly, my broker for telling me "Sure no problem we do it all the time" and then changing it to "What's an additional $400 a month, just refinance in a year what could possibly go wrong", and finally just to the dumb laws that limit how much Mrs. Panerd's parents can give their daughter or go after CU Tiger for back taxes for money his parents gave to his family in good faith. So CU or myself waits 60 days than nobody gives a shit but try to do it day 59 and the IRS comes calling. Just a frustrated rant. Probably wasn't meant to be and maybe we will find our dream house but just a bitter taste in my mouth right now.

[JPhillips]

Just be aware that almost every mortgage broker is going to play the same games. Keep in mind that they are not trying to do you any favors.

[Flasch186]

shop that loan around and dont be afraid to tell them you're shopping it around.

[JPhillips]

Also, another great house is out there. Don't feel like you lost your dream house, you'll find another one.

[stevew]

Can't you just give money back from the twins to her parents and then have them gift it to you and your wife after the new year?

[panerd]

Originally Posted by JPhillips

Also, another great house is out there. Don't feel like you lost your dream house, you'll find another one.

Very true. It's hard when you are in the middle of it but I definitely recognize this to be true. It just sucks that part of the reason we may back out is not even house related and is loan related but I guess this happens to a lot of people and its part of life.

[panerd]

Originally Posted by stevew

Can't you just give money back from the twins to her parents and then have them gift it to you and your wife after the new year?

They are giving us the max for both 2016 and 2017 already. The kids' money was on top of that. I don't know for a fact but I'm guessing trying to give the money back has IRS all written all over it.

[CU Tiger]

Good luck to yall!

Just to clarify my earlier point about the IRS....my situation was similar but opposite. When I sold my company my right hand guy had been with me from day 1. He had been instrumental in our growth and success. Frankly he may have been a bigger part than I at times. He also didnt get along at all with the new owner, who was also an employee. We all knew he wouldnt be retained so I negotiated a severance exit for him along with the sale. In addition I gave him a thank-you. He moved back home and I gifted him, his wife and their children a yearly max. The IRS deemed that my gift to his children was really a gift to him, and used the fact that the family used all that money as a down payment on a home as evidence. They found ME guilty of financial posturing to avoid taxation and ordered me to pay taxes on the gifted money in excess AND ordered him to pay taxes on the money received.


I am 100% confident you can get by the mortgage issue. I am less confident about the side of the equation you aren't worried about. Making that house work should be nothing harder than getting the real estate agents to schedule a meeting between the two parties. Explain honestly and candidly what is happening. Worst case scenario you pay their mortgage for a month and they extend closing. You let the money season 45 days and you re-apply to a new lender. And that is absolute worst case. Hell I am buying an investment property in January we were supposed to close on in August and I am doing something similar on. If your Agent and their Agent and none of the attorneys can figure that part out, then either yall need a new team OR they are just being unreasonable twits. If they are being unreasonable twits there is probably more they are hiding in this deal.

[panerd]

Update for CU Tiger and anyone else interested. We didn't walk away (wife had fallen in love and I will admit I had already kind of pictured the "mancave" and patio arrangement myself.)

US Bank did a recast for $250 two months in and we paid two months of higher mortgage payments with a net loss on interest of about $350/month. (I am a teacher with a stay at home wife and 3 kids so we have the standard deduction and interest is meaningless) So we ended up out only about $1000. Still $1000 that could have gone towards the house, new furniture, 40 lap dances...

So selling our new house became an adventure in itself...

So our agent (who really sucked, outside of a few it seems to be the general consensus amongst anyone I have talked to that they all do) gave the buyer's agent the keys to our house on the day of closing and there ended up being a paperwork fiasco that delayed the closing two days. Well this guy had renters move in the day of closing and we were basically told by both the police and our agents shrug "Nothing you can do". WTF? So if the house burned to the ground and the renters all died I'm sure the new owner was going to accept that this unfunded house was his. Just ridiculous nonsense that I am so glad is over. I think we will be in this house for 40 years just because of this experience.

[CU Tiger]

Congrats!

[stevew]

40 lap dances seems like a great investment though.