"Can you help me get my kid get out of my house and into their own place?"
Yes folks, this is a real question that I have been asked by some of the parents of some of my clients. In my continuing series of answering some of the most frequently asked questions that I get from clients and prospects, in Part 7, I want to discuss what parents can do to help their kids buy their first home.
While some are a little riskier and much more of a commitment, others are relatively pain free. Think of the benefits too Mom & Dad - you'll have your house back or at the very least, a room back to do what you want with not to mention a little more peace and quiet and some more privacy. Who knows, maybe you can now sell that big family home and get that nice little condo on the 15th green somewhere. The possibilities may be endless by just getting that fully employed, adult kid out of your house.
There are two ways that parents can help get their kids out of their house and into one of their own; 1) provide a gift for the down payment or 2) become a non-occupying co-borrower (n/o/cb) on the loan. Option number one can be relatively painless (depending on your financial means) and option number two will require much more of a commitment on the parent's part.
Option #1: In providing all or part of the down payment for your kid to buy their first home, the most important thing for parents to remember is that all funds used to buy a home (regardless of who is buying it) need to have a paper trail. No, you can not just give your kid money and not be expected to prove where the money came from and that it was yours to give.
One of the biggest complaints I hear from parents is, "it's my money to do what I want with so what do you care where it came from?" Good grief, if it were that simply folks, do you think I would even be blogging about it now? Let me say this again (just in case I didn't make my point the first time), "every single cent that is used to buy a home must be documented and verified".
When "gifting" funds to your kid, you will need to provide documentation of where the money came from (a bank or asset statement). Yes, that means that you have to provide us (MLO/lender) with a copy of your statement and that means all pages of the statement and not just the page that shows the debit.
Once again, this can be a major stumbling block for many parents who have objections about providing their own personal info. On that note, I am often compelled to ask them, "do you want to help your kid get out of your house and into their own?" Sometimes, reminding parents of the objective and goal is all that is needed to get the necessary cooperation.
Option #2: Becoming a n/o/cb is much more of a commitment on the parents part. In becoming a n/o/cb, parents are actually buying the home with their kids. That means that if your kidsw don't make the payment, you, Mom and Dad, are on hook for it. For parents who choose to go this route, this will require that you are fully aware of your kids financial status and completely trust your kid to be a mature and responsible homeowner and borrower. If you can't, you may want to rethink the whole gift option.
Parents who become n/o/cb will have to provide all the same documentation that their kids provide and parents will have to go through the same underwriting scrutiny as well. Now, you may be thinking right about now, why would some parents even consider this option when they have the whole gift option.
Unlike the gift option where the kid is the one qualifying for the loan pretty much on their own, with option #2, this is where the kid can't qualify on their own. It's been my experience that this option is much more popular where the kid would be spending more on renting an apartment than they would buying a house and renting out a room or two to that buddy of theirs who is also paying a small fortune for some dinky apartment.
Right now in Los Angeles & Ventura counties, there are many areas where it is more affordable to buy a 3-4bd house than it would be to rent a 2-3bd apartment. In helping your kids buy a house and manage their rental options, this not only helps your kids get a great place for less than what they would spend on rent but it also helps them realize the dream of homeownership as well as learn to become a mature and responsible homeowners.
Today's real estate market can be really scary, which is why it's important to get as much information as possible before starting your search. If it's been awhile since you've bought a home yourself, then you and your kids need to work with someone who has the experience of helping out people just like you.
The pre-approval process is not a simple process and it's because it can get really complicated and convoluted, that borrowers (and their parents) need affordable loan options that are best suited for their own needs. For more information on affordable home loan options, please feel free to contact me, Donne Knudsen, at 805.2069123 or donne4loans@earthlink.net.
What Kind of First Time Buyer Programs are Available in Los Angeles & Ventura Counties? FAQ - #1
What kind of property can I buy? FAQ - #2
What Kind of Paperwork Do You Need to Pre-Approve Me? FAQ - #3
What Kinds of Things Can Go Wrong in the Loan Process? FAQ - #5
What are Impound Accounts & Why Do I Need to Have Them in Order to Close My Loan? FAQ - #6
I'm Supposed to be Closing Next Week Can You Help Me? FAQ - #8
If I Buy a Duplex, Can I Apply the Tenants Rent Towards My Mortgage? FAQ #9
What Happens if My Appraisal Comes in Low? - FAQ #10
What is a HomePath Property and How Can I Buy One? - FAQ #11
Can I Still Get a Loan if I Don’t Have Perfect Credit? – FAQ #12
Are There Still Loan Programs Where I Don't Have to Put Anything Down? - FAQ #13
Photos courtesy of flickr: Im So Vintage TheTruthAbout jpersons
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Donne Knudsen
Realtor® - CalState Realty Services
DRE#: 01364050 / NMLS#: 249822
805.2069123
Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance
Los Angeles County -- Ventura County
© 2010 - All Rights Reserved
Excellent! Wonderful points to help guide parents into assistance and awareness that they can impact their child's ability to purchase a home. I believe that parent's active role not only in guiding their children as to the importance of budget, savings and denying impulse purchases but working towards a big purchase (not just given to them) is huge. Setting an a at home example is also just as important. Getting the family involved for saving for a vacation, etc. They grow up appreciating the dollar and know how to be responsible.
Donne....I just LOVE the title of this one! LOL! As the parents of 3 lovely daughters, with the oldest turning 16 tomorrow, we sometimes count down to when they will be out of our house & living on their own!
Donne, I bet this one comes up ALOT!! :) Good explanation of options!
Connie - I actually enjoy working with clients and their parents. While there have been a few transactions where the parents were more trouble than they were worth (a whole other post), most parents are usually very beneficial to have in the transaction. They're like built in partners and teammates.
Christine - While I am not a parent, I can most certainly understand the anticipation so many parents have about their kids finally being able to fly the coop, so to speak. Happy Birthday to your daughter - 16! That's a big milestone. :)
BLiz - Oddly enough, it kind of does. While option #1 is definitely the more popular choice among most parents, option #2 is actually a pretty good one too because it kind of motivates the parents to become invested in their kids financial future.
Thx for stopping by folks; I really appreciate it. Have a good day everyone. :)
Donne - love this one! Although some people might just want the kids OUT and not help them buy a home... lol! We helped our son buy his first home, and it was a huge milestone for he and his wife and family! I'd like to reblog this :)
I can testify that this is no fantasy scenario. I have two transactions in progress right now for which the parents are contributing mightily in an effort to launch their "youngsters" (one mid-twenties and the other is thirty) out of the nest.
Kathy - So true! LOL I think its wonderful when parents are in a position to be able to make an investment in their kids financial future.
Dave - While some parents are a dream to work with with there are others that are a total PITA. I once did an article about the parents that end up being more trouble than they're worth.
THE JOYS AND CHALLENGES OF WORKING WITH MY CLIENT'S PARENTS: Part Two
Thx for stopping by folks; I really appreciate it. Have a good day too! :)
Donne: We had no problem with the kids moving out. Each was back for only a very short time after graduating from college/law school. THEY are gone ... it's their STUFF that still lingers! Now ... if you can help with THAT ... you're a magician!
Great post, btw ... as usual ...
Gene
Gene - LOL at the kids stuff. I've heard that complaint more than once from parents. It's the kids who move out to dinkly little apartments that can't take their stuff with them. Thx for stopping by Gene; I appreciate it. Have a good night too. :)
Great Post Donne. I am gtting more clients who are taking advantage of the market and helping their kids buy homes.
Wonderful and timely post. With the poor economy, so many of these kids return home without a clue to how to find a job and where they're going to live. Let's face it - we love our kids, but after a while, we want them out of the house! Great information. I just want to say thanks (prior responses sufficient).
Keisha - It's a great time for parents (who are in the position to do so) to help their kids out. Heck, some parents will even tell me that it's less expensive to give them the money to buy a house than it is to keep them at home. LMAO!!!!
Jill - For many parents, it's because they love their kids that they end up throwing helping them out of the house. Some kids these days, just need a little loving hand to push help them out.
Thx for stopping by ladies; I really appreciate it. Have a good day. :)
And stay out! Just kidding.
Hey Donne, You've got a great series going here. Instead of bookmarking it ALL I think I will just subscribe! Thanks for your wonderful advice!
Charita - LOL I would venture to say that there are probably a lot of parents who feel that way whether they say it or not. Kind of reminds me of my own parents when I told them I was moving out (and moving in with my boyfriend). My father asked, "do you need to borrow the truck?" :)
Brenda - I'm glad you like it and thx for subscribing. That means a lot to me.
Thx for stopping by ladies; I really appreciate it. Have a good day. :)
Donne: With our current economy it is more frequent to have adult children at home....I can definately see why you've received this question....There was a movie about this, "Failure To Launch"!
Jane - That is so true and I'm LOL at the movie reference. Oddly enough, I have heard a few parents make that same reference. For some parents though, getting the kid out of the house would enable them to move on to the next phase of their life as well. Thx for stopping by Jane; I really appreciate it. Have a good night Jane. :)
That is some great information Donne! I have a friend who waned to buy a home for her daughter and when she found out her daughter had the credit she did...well...that idea went out the window :)! Good to know options for parents that are willing and able to "help" their kids out of the house :)!
Brenda - Yes, parents need to know what they're doing before committing to something like this. Not everyone is prepared to be a homeowner and those that aren't shouldn't be pushed into it.
Alhough I'm not a parent, one thing I've learned after 8+yrs as an MLO is that some kids just need a little push help to get out on their own. They're mature and responsible young adults and helping them into homeownership is a really nice thing to do, for parents who are willing and able to.
This is a great post Donne. I wish I could reblog for my readers. :-( This is something that is definitely harder these days...children are moving back home more than ever.
Debra - It is so true that many fully employed young people simply can not afford to live on their own. So many need to share housing with a roommate. I don't know what it's like in your market, but here in Los Angeles & Ventura counties, rents are up and vacancies are down. Landlords are getting premium rents on their rentals. However, homeownership affordability is the best it's been in years, maybe decades for those that can get a loan. For many kids, the only way they can get a loan is with a little help from mom and dad.
Thx for stopping by Debra; I really appreciate it. Sorry the reblog feature is still not working too. Hopefully, AR will have that fixed real soon. Have a good day and a great week too. :)