Lenders take varying approaches to down-payment help from relatives

Q. My parents have promised to help us with the down payment on our first home, which we hope to purchase within a few months. How do lenders treat loans or gifts that borrowers receive from relatives?

A. Policies about loans or gifts from parents and others vary from one lender to the next. Some banks don't care where all the down-payment cash comes from, but others are a bit more cautious.

If the help your folks provide is a loan that must be repaid, the bank will want to know details about repayment terms. It also might reduce the size of the mortgage it is willing to provide if the payments to your parents would make it more difficult for you to also repay the bank.

Conversely, if the money is instead an outright gift, the bank will probably just ask your parents to sign a preprinted "gift letter" stating that the money won't have to be paid back.

Regardless of whether the help is a loan or a gift, ask your parents if they can write you the check now, so you can immediately deposit it in your checking or savings account. Depositing the money now will raise the account's average daily balance, which in turn could improve your chances of getting a mortgage when you locate the home you want to purchase.

Q. I filed for Chapter 13 bankruptcy two years ago, and I will make the final payment under the bankruptcy plan in January. Will the bankruptcy be removed from my credit report as soon as the last payment is made?

A. No, the bankruptcy will remain on your credit report for several years after the final payment is made and the case is formally discharged by a judge.

A Chapter 13 bankruptcy, unlike a Chapter 7 filing, requires that creditors be repaid at least a portion of what they are owed. Though your report will be updated with a "discharged" note when the final payment is made, the bankruptcy itself will stay on the record for seven years from the date it was filed.

If it's any consolation, a Chapter 7 bankruptcy would have done even more long-term damage to your credit score, because it would stay on your record for a full 10 years after the filing date.

Q. I am relocating to a community that is considered a flood zone, and the real estate agent I'm working with says I will have to buy flood insurance from the government in order to get a loan to buy a house. Can you tell me how the program works?

A. Sure. Literally millions of homeowners in 19,000 communities across the United States live in federally designated flood zones. Most private insurers won't provide affordable flood insurance because even a minor flood could cost them billions of dollars, so the Federal Emergency Management Agency makes coverage available through its National Flood Insurance Program.

The policies have some unusual quirks. For example, unlike a standard homeowners policy, flood insurance doesn't cover damage to floors or finished walls in a basement. Appliances (except water heaters and furnaces) located in the basement aren't covered either, unless the homeowner pays extra.

Though the government actually provides the insurance, flood policies are sold through independent agents and private companies. It's best to buy a flood policy from the same agent who writes your homeowners or other insurance, a FEMA spokesman says, because you'll only need to work with one company if a claim eventually needs to be filed.

If your current agent doesn't offer flood policies, you can find one who does by visiting FEMA's website at www.fema.gov or by calling the agency's toll-free hotline, (888) FLOOD29.

Q. We have agreed to buy a home in a new tract, and construction of our house began three weeks ago. We have been visiting the site almost every day to see how work is going, but the construction foreman has been getting increasingly cranky with us, and yesterday he literally told us to leave. His nasty attitude makes us think something might be wrong. What should we do?

A. I don't think you need to worry. Although you can't be blamed for wanting to watch your house being built, it's important to remember that construction sites are both busy and dangerous. It's quite possible that the construction supervisor feels your constant visits are distracting his workers, or maybe he's worried you'll get hurt and sue the builder.

The sale contracts used by many homebuilders specifically prohibit buyers from visiting and walking their construction site, or insist that visits be limited to certain times on specified days. Even if visits are allowed, the guests typically must wear hard hats and be accompanied by one of the builder's employees.

Talk to the builder's sales manager or other representative about your concerns. If you're still uneasy after the discussion, I'm sure you can then arrange to have a meeting with the construction supervisor to clear the air.

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