<p>Just wondering if anyone has thoughts about potentially helping their young adult purchase real estate. I admit no one helped H or me, but have read that up to 24% of 1st and 2nd homebuyers are getting some help from family. </p>
<p>S has a stable, full time job and lucrative part time job as well. He’s considering buying a place because he’s in his second year of renting @$2K/month. We are contemplating the possibilities, as his lease ends this fall and he has to decide whether to renew for 3rd year or move or buy this or another place. </p>
<p>The subject crossed my mind because S texted that he’s considering buying a place, since rent is high anyway and his income, credit score and assets would qualify him for a pretty good mortgage. </p>
<p>Perhaps of more help would be pointing him to resources on making the rent versus buy decision, and what things to be aware of in the buying and selling process, in order to avoid making any expensive mistakes.</p>
<p>S1 graduated from college in May 2009. He bought a house in Dec. 2011. He has a roommate paying half the monthly mortgage. S1 doesn’t regret buying the house. Due to it’s location (one block from the beach), he feels it was a good investment. We did not assist financially. He did it on his own. </p>
<p>We just recently had similar discussion with D1. She has been renting for 3 years. I told her not to buy a one bedroom in NYC because of closing costs. Even though her rent is high, on the after tax basis it is still lower (same) as owning a similar place. I don’t think apartments in our area are going to appreciate enough to offset potential closing costs. I told her to buy a 2 bedroom with her future SO, so it would have enough room to have a child. I would loan her the downpayment if she should need it, but I wouldn’t help her with monthly payments.</p>
<p>@Hlmom - It sounds like your S is very responsible. If buying vs renting makes sense in S’s location and you have the means to easily assist him, I think it’s a good idea. Mortgage companies will not want the down payment assistance to appear as a loan. It would need to be in the form of a “gift.” S would have the tax advantages of owning, hopefully be able to build equity in the house, and could take on a roommate to assist with the payments (although I would want the payments to be such that S can afford on his own). Also consider whether S would have funds for repairs and maintenance. </p>
<p>My son graduated from college in December 2011 and bought a house in December 2013. He has a secure job and had money saved for down payment, closing costs and costs of renovations. He just moved in last week and a roommate is moving in at the end of the month. It costs him approximately $200 more a month including utilities than his rental apartment. Rent from roommate will put him well ahead and go directly into a savings account for future repairs and renovations. This is the same kid who I worried would never finish college!</p>
<p>Our parents kicked in enough money for the down payment on our first house so that we wouldn’t be stuck with mortgage insurance. We were in our early 30s by then though.</p>
<p>For our second house they kindly rented our first house for the month or two lag between when we bought the new house and sold the old one. The mortgage company didn’t think we had enough income to carry two houses. I don’t think we actually collected the rent, we had plenty of money to deal for the short time it ended up being.</p>
<p>My parents came with us to house showings, more for moral support than anything else. My dad was helpful for pointing out things that looked like little repairs but really weren’t, and my mom was helpful for pointing out practical considerations I hadn’t thought of-- like “look, in this house you can see into both the family room and the backyard from the kitchen, that will be nice when you have kids.” Nobody helped us financially or helped us figure out mortgages or anything like that. It was one of the hardest things we’ve ever done, but it was not too hard-- not any harder than figuring out how to go to college was and I was better equipped for this! We didn’t need help and I don’t think we would have accepted it… our parents aren’t privy to the intimate details of our finances. </p>
<p>We only bought because we planned to stay here at least 10 years. We’d like to stay in this house forever, we purposefully bought one that was big enough that we could-- I didn’t want to buy a “starter house” I’d have to sell in the near future. We used to rent a teeny tiny apartment in kind of a bad neighborhood for $1,200 a month. Now we live in a beautiful, safe suburb for $900 a month which includes our property taxes and homeowners insurance, and our utilities are maybe 20-30% less since our home is much more efficient and better insulated than our apartment was. We have room for 2-3 kids and the schools are good, and we’re centrally located if we need to change jobs. We can stay here for a long time. But I will tell you, after the hell and stress that house hunting was, if I’d bought a house I’d have to sell any time soon I’d be kicking myself-- I dread ever having to do it again.</p>
<p>We hit a snag with our mortgage, some of you may remember. Our mortgage is just in my fiance’s name and he bought the house himself. I wanted to give him 5k for the earnest money deposit, we deposited it into his account, and the bank would not take any money that came from me, they said the deposit could not be a gift-- they had to be able to “source” it from his income. I never paid him a monthly rent when we lived in the apartment, it was my job to save up for that 5k instead, so we told them I’d paid him the 5k in place of rent but they didn’t care for that either. They pre-approved him for twice what our house cost so it doesn’t seem like they should have had any reason to doubt his income. We had to scramble to come up with another 5k cash coming solely from him before the closing. But then, at closing, the lady who was there from the bank said she had no idea why they wouldn’t take my money and they ended up taking it.</p>
<p>He can’t underestimate maintainence costs. Our house was move-in ready but I’d still like to paint and replace the carpet, and it needs a lot of cosmetic drywall work done I didn’t notice at the two showings. The cost to do the floors is going to be anywhere from 5-10k, and the quote for the drywall work was like 3,500. Our furnace and water heater are both 20 years old and will need to be replaced soon. We just had someone out to look at the driveway in the fall and it needs 3k in repairs supposedly. I want to put in a privacy fence, that’s 8k. I’d like an above ground pool, that’s going to be 4k. Plus it’s $100-$300 here and there and everywhere for this little thing and that. With what we save in rent and utilities, most months in the house are much less expensive than most months in the apartment, but I suspect we end up using a lot of that savings on maintainence and improvements for the house. I guess the difference is I’d rather be doing that than paying for a crappy apartment in a bad neighborhood.</p>
<p>We got some help with the down payment from our parents 30+ years ago, although it was essentially bridge financing to keep from drawing our own assets down to zero. It was repaid in under one year. </p>
<p>More recently, I’ve seen a situation of someone helping a child where the income of the children raises an issue about ability to comfortably sustain ownership of the property. It seems to me that these arrangements are sometimes fraught with peril. If someone is not completely satisfactorily employed, or if a need to move arises, it raises other issues about what to do with the property that become problematic if the parents have “phantom” equity (or phantom mortgage) on the property. Sometimes it might be easier to just buy the property outright and then rent it to your children. At least if they have to move they don’t have to sell to extract their equity.</p>
<p>In the end, it all depends on the specifics of the circumstances. </p>
<p>HImom, your son says he has what it takes to buy a place. That is wonderful! Let him do this. Did he ASK for financial help? Why not give him money towards furniture, and other household items he might need? </p>
<p>I’m sure he will also appreciate periodic, generous gifts.</p>
<p>I would help my kids IF they really needed help, but otherwise, I would only be an advisor.</p>
<p>My inlaws helped us buy a house in a safe neighborhood with good schools. We would never have been able to afford it on our own. It was truly one of the most generous and life changing gifts that anyone could have ever done. It has impacted our, and our childrens’, lives in so many ways and has given us advantages we would never have foreseen. I would love to do the same for our children and pay it forward.</p>
<p>If the DS can afford this on his own, I agree with whoever said to let him do so and experience the satisfaction of doing it himself. But gift him some furniture or help out with the inevitable expenses that are incurred either at closing, moving, or making repairs/attending to cosmetic fixes like paint or new appliances or cabinets or something. Window treatments are a big expense people often forget about if he needs privacy shades or blinds or something. Or gift him a built in stereo system or some such thing that men seem to love having. </p>
<p>My mother helped us with a down payment on our first condo, but that was in the early 80’s when mortgage rates were ridiculous. We only accepted under the condition that we repay her if she ever needed the money. She said it was something my father, who died right before our wedding, had wanted to do for us.</p>
<p>We would help only if one of our children asked for our help. Actually, DH inherited some money from his father that we told our kids we would save for them for major purchases since we don’t really need it at this point (our house is paid off and we’re done with tuition).</p>
<p>My parents loaned us our first down payment. H and my father agreed on an amortized payback plan with interest close to the market rate, which in those days was 12%! We paid it back ahead of schedule and were able to pay our mortgage and save money also.</p>
<p>We did have to lie to the bank and say it was an outright gift, though, in order to get a mortgage. ;)</p>
<p>Our parents didn’t help us with our first house. When we had to move due to a employment change we asked FIL if we could borrow some money for the down payment on a new house since we weren’t sure if the old house would be sold by then. He said No and that if we couldn’t afford the house on our own that we should look for a cheaper one or rent until the old house was sold. It was kind of a bummer at the time but we ended buying a cheaper house instead of renting. I still drive by that house once in a while and wonder what it would have been like to live there. Anyway if I had the money I would help my kids with a down payment. </p>
<p>If, and only if the parents are set or on the path to a very comfortable retirement, and we are talking about a responsible, hardworking young adult, I am not at all opposed to helping. Assuming the parents have imparted good values, including the importance of early saving and investing, and the adult child is able to afford the payments, IMO there is little risk that this will lead to an overnight sense of entitlement or a slacker mentality. </p>
<p>I happen to know quite a few friends and relatives our age who got some help early on. From what I can see they are nothing but grateful and determined to pay it forward with their own kids. No one ever felt diminished, unmotivated or as if they didn’t accomplish on their own. </p>
<p>As Silpat correctly notes, the assistance can be geometrically more significant in its impact early on. The money saved compounds and grow for decades, whereas it’s impact to the parent is much less. Again, this is assuming that it’s something the parents can easily afford. If there is any concern they may need those funds down the road, then it’s a bad idea. </p>