First time home-buyer questions

Dad_of_3
Sat, 04 Feb 2012 13:15:11 +0000

DS is working as a programmer at a startup in Palo Alto, renting a furnished room and mini kitchen/bath for about 1500/mo. His good friend from HS is also working close by and his parents are looking at getting him a 2 bedroom condo/townhouse in the Mountainview CA area at about 650-850K. DS was asked if he wants to either rent the second room or become a co-owner.

DS has no debt, about $20K in savings thus far, and he was planning a max mortgage of about $2500/month or about 30% of gross.

We’re not familiar with the intricacies of real estate ownership (we just have a simple ten year mortgage that’ll be paid off this year) and need some advice, or at least the different points we need to consider to make the decision.

If he goes as a renter, there are no issues and our involvement is zip, and his home-ownership decision is pushed back to a future date. As easterners, we don’t really know if he should be encouraged to get into the Silicon Valley property market at the earliest opportunity to avoid missing the bus, or if it’s sitting on another big bubble, and he’s best off renting in the foreseeable future. In all likelihood, he’ll stay in that general area, even if not with the company he’s with today. Is it worth considering ownership, and if so, what are the pros, cons, and sticky issues other than the obvious ones like if one wants to terminate, has financial issues, or it doesn’t work out?

Is it even advisable for two unrelated people - just good friends - to share a home and mortgage? DS doesn’t have the downpayment and <1 year credit history. If he goes with a joint ownership, will he qualify if we as parents loan him 20% for the down payment, and are there any drawbacks or other better ways of doing this? What are the considerations if we, the parents, become joint owners? Even on our primary residence we don’t qualify for full interest deduction, and I assume in this case the tax benefits will be even less. Are there any other considerations like gift tax or other such things we need to consider?

I know many of you with better real estate literacy can see obvious benefits, red flags, or points DW & I haven’t even thought of, and I’d appreciate your insight.