Dad offering a loan for our down payment… what to do with it, or whether to even accept it?

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My husband and I recently got pre-approved for a home loan, and the lender figured it with $ 0 down payment because we qualify for USDA/FHA (?) assistance (my husband knows the specifics).

Anyway, my dad has offered to loan us $ 10,000 to put toward a down payment. It would be a huge help, but I’ve used online mortgage calculators, and maybe I’m doing something wrong, but it seems $ 10k down hardly makes a difference (it’s a loan, not a gift, from my dad, so consider I’m paying him $ 100/mo for a while here).

All we have saved at the moment is the $ 1,000 that we plan to use as earnest money when we make an offer, so $ 10k would be a huge help.

The lender did say that for every $ 1,000 you put down, you probably take less than $ 10/month off your mortgage payment. So is it even worth taking my dad up on the offer, if we have to pay the mortgage, AND my dad $ 100/month (for 8 1/2 years)?

Just wanted to know what the advantages are to putting down such a sum of money as opposed to going with 100% financing like we originally planned. Would it help us get approved for a better interest rate or something like that?

I’m also considering taking him up on it so we can clear all of our credit card debt, that way our only “debt” is paying him $ 100/mo and not throwing away money on interest.

Which would be the better option, in your opinion?

6 Comments
  1. Reply
    Keith Truth
    January 23, 2011 at 11:48 am

    Borrow the $ 10K and pay off your credit card debt. Best option, for sure. I don’t even have to know what the numbers are to know that the interest the credit cards are charging is more than what your home loan is going to be charging and way more than your dad is charging (since he’s not charging you anything). Pay off the credit cards. Just don’t get excited when you have all that credit available again, you don’t want to max them out again.

  2. Reply
    dusty_titus
    January 23, 2011 at 12:22 pm

    Your fathers loan (which is actually a gift – since he is not charging you interest) would be best used on a 50/50 basis – adding 5,000 to down payment to help build equity faster, and 5,000 to pay off interest bearing credit card debt. You will get that 100 per month back when you deduct mortgage service & interest fees, on income tax return. Best of both worlds.

  3. Reply
    JWilly
    January 23, 2011 at 1:09 pm

    If you use his money as a down payment on your loan, the mortgage company needs to know that. They already know your financials, so they will question where the $ 10k came from.

    Assuming your Dad’s loan is zero interest, by all means use the money to pay off your credit cards. But beware, you will be tempted to run the card balance up again, then you will have your Dad’s loan plus you credit cards. This is a death spiral that many people get into, me included many years ago.

    Another word of caution, missing a payment to your Dad could cause problems. I don’t know what he’s like, but loaning money to family members is usually a bad idea.

    Ultimately, if you can make it without you Dad’s loan, that is the best answer. I know, the money is tempting, but you would be better off developing some financial discipline and paying off your cards and starting to save some money. If you don’t you will regret it in the future.

  4. Reply
    geotom
    January 23, 2011 at 1:20 pm

    First you have to consider your relationship with your dad, is this a large amount of his savings, will this be a problem should you fall into financial problems and be unable to make the payment to him. If you don’t see any problem there then your best bet is to not only pay off your your credit cards but to cut them up also. Easy credit buries people in debt and is the major cause of divorce in this country.
    On the other side of your question, in this market there are many bargain properties available, it’s up to you to get off on the right foot and search for the best buy, your first step to your dream home. Research short sales and foreclosures don’t rely on a Realtor to do this for you.
    Having only $ 1,000 saved tells me the payments on your cards are eating you alive. Another bit of advice: the worst investment in the world is buying a “NEW” car, Remember it’s only “NEW” the day you buy it then you are making payments on a used car.

  5. Reply
    Lauren F
    January 23, 2011 at 1:46 pm

    I would wait until you get to closing to decide what to do with this money. In all likelihood, you will need about 3% of the purchase price of the house for closing costs. When you go to closing, you will have to pay as much as three months’ real estate taxes in advance, plus probably some transfer taxes for your county, plus title insurance, property insurance and an upfront payment on your mortgage interest. Ask your realtor to show you a sample “good faith estimate of closing costs” so you can see everything involved. I was amazed when I bought a house how many times I had to shell out $ 400 for this… $ 500 for that, $ 250 for this other thing. Unless you are prepared, these are all expensive surprises.

    When you get to closing, you will need to show CASH in the bank for all of the closing costs. Plus there are a whole lot of costs involved with moving – utility hookups, extra shopping for supplies, moving itself.

    So, deposit your dad’s loan, get through closing and moving in, and then set aside 2 months’ worth of living expenses in a savings account for emergencies. If anything remains after that, put it toward your credit cards.

    One thing you don’t want to do is to move into a house cash poor. Every house needs minor repairs and fixes, and you need an emergency fund with at least $ 1,000 to be prepared for these, or else you will find yourself back in credit card debt again.

  6. Reply
    Jennifer
    January 23, 2011 at 2:40 pm

    Hi,
    I used “Credit Answers” to settle my student loan,mortgage,credit card and other debt.They managed to reduce my debt up to 58% and improve my credit score .It’s legitimate . I came across this company on CBS News Special Edition.Check it out here:
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