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Some help from mom and dad

With home prices high and big down payments harder to come by, a growing number of would-be buyers are getting financial help from their relatives.

More than 20 percent of all first-time buyers across the United States get some financial help from their parents or others, according to the National Association of Realtors.

There are three basic ways parents can help their kids buy a house: simply provide some or all of their down payment, lend the money to them, or co-sign their loan application.

"Giving your kids money toward the down payment is probably the simplest and easiest way to help out," said Gary Judis, president of Los Angeles-based Aames Home Loan.

Lenders are more willing to make a loan when there are no strings attached to the down payment, Judis said, and an outright gift will limit the parent's responsibilities if the loan eventually goes into default.

If parents provide all of the down payment, the lender will probably ask them to sign a "gift letter" specifically saying that the money really is a present and doesn't have to be paid back.

As a general rule, if the gift is equal to at least 20 percent of the purchase price, the lender won't require that the child put up any of the down payment.

That is because big down payments lessen the chance that the lender will lose money if it must eventually foreclose, said Pamela D. Schumacher of the Los Angeles-based Camden Financial Services.

But if the gift is less than 20 percent of the purchase price, Schumacher said, the lender may insist that the child put up 5 or 10 percent of the down payment.

"There's a lot lower chance of default when the child has some of his or her own money tied up in the house," she said. "When mom and dad are the only ones who have invested in the house, there's a better chance that the child will just quit making payments if things don't work out as expected."

Lending money to children can be helpful, but not nearly as helpful as simply giving them the down payment. That's because the lender will factor in the monthly payments your child will have to make to you _ a calculation that could result in the lender reducing the size of the loan it is willing to make.

In fact, some lenders will not make a loan if all of the child's down payment is borrowed.

Another way that parents and their children sometimes get around the restrictions on loans or gifts takes a little more planning.

Let's say you are applying for a home loan. More than likely, the lender will ask your bank for the average daily balance in your savings account for the past three or six months.

If the average has been high, you will have a better chance of qualifying. But if the average is low and a huge deposit was recently made into the account, it is a tip-off to the lender that the money probably came from someone else.

To get around that potential pitfall, you can borrow from your parents several months before you start shopping for a home and put the cash in the bank to start drawing interest. That raises the average balance and can improve your chances of getting the loan.

"Remember, though, that we're going to ask you how you've saved up $40,000 or $50,000 when you only make $3,000 a month and you've been paying $1,000 a month in rent," said Bruce Norman of First Mortgage Corp. in Diamond Bar, Calif. "And if you're thinking about doing something that's a little shaky, remember that it's a federal crime to misrepresent yourself on a loan application."

The third way parents can help _ co-signing for a loan _ can be a bit risky.

"Putting your name on the loan application can make it easier for your kid to get the money because we'll take into consideration how much both you and your child earn when we're deciding whether to make the loan," said Judis at Aames Home Loan.

If you are hoping to get some help from your folks, also keep these tips in mind:

Lenders like to see financial help come from close relatives instead of long-lost uncles or friends.

Lenders also tend to look favorably on gifts or loans from employers, churches, synagogues and the like.

If the down payment is a loan instead of a gift, put the repayment terms in writing.

Don't forget the Federal National Mortgage Association's new "3-2" loan program. It allows a child or other borrower to get up to $191,250 if she makes a down payment of at least 3 percent and a relative, employer or a non-profit group puts up another 2 percent.

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