Tami and Steve's I-94 Minnesota Real Estate Blog: How Parents Can Help Their Children Buy Homes

Saint Cloud, MN Real Estate | Tami DeLand and Steve Hansen
Tami & Steve's St. Cloud, MN Real Estate Blog

Featured Homes
Bookmark and Share

Quick Search

Advanced Search

Click Here

Search by Listing #

Search by Street Address
Free Email Updates

Free Relocation Package for moving or transferring to the Saint Cloud and Central Minnesota area

Visit Tami DeLand and Steve Hansen's Facebook profile
Visit Tami DeLand and Steve Hansen's Active Rain profile
Visit Tami DeLand and Steve Hansen's Twitter account

Tami & Steve's St. Cloud, MN Real Estate Blog
Subscribe to Tami & Steve's Central Minnesota Real Estate Blog by Email

Monday, February 25, 2008

How Parents Can Help Their Children Buy Homes

Here is another way first-time homebuyers are successfully purchasing homes in today's market!

RISMEDIA report, February 26, 2008

Here are three ways parents can help their children buy homes:
1. Cash is Clean and Easy: Experts say simply giving adult children cash for a down payment is one of the smoothest ways to help them buy a home. For parents with the means, gifting can avoid intergenerational squabbles and misunderstandings.
“Helping with cash is pretty clean, pretty easy,” says Jack Guttentag, an emeritus finance professor at the Wharton School of the University of Pennsylvania.
Guttentag helped his adult son buy a house in Venice Beach, Calif., about 15 years ago. Prices were high, so Guttentag ponied up for the down payment, while his son had enough income to carry the mortgage.
“It turned out well,” Guttentag says.
To avoid triggering a taxable event, Guttentag spaced out his gift over two years. An individual can give $12,000 a year to a recipient without having to pay a tax on the gift. Therefore, a couple could give an adult child and the child’s spouse a total of $48,000 in one year.
Yet gifting can become complicated when lender institutions have rules that limit the size of a gift. From a lender’s point of view, a debt obligation-even a gift from parent to child-could weaken the security of the mortgage, Guttentag says.
“When lenders assess someone’s qualification for carrying a mortgage, they take into account their other debt payments,” he says.
Some lenders can be concerned that reported gifts aren’t really gifts at all, and may require borrowers and parents to sign an affidavit that no repayment is expected, Guttentag says. To avoid too much scrutiny by a lender, Guttentag suggests giving your adult child a down payment well in advance of applying for a mortgage.
2. Cosign a Loan or Invest in a House: Some parents may have limited resources as home equity has come under pressure. Others may need their investments for retirement.
Yet they can still help their adult children by cosigning a loan. Cosigning can help make a lender feel more comfortable with extending a mortgage to an adult child, says Adele Brady Bolson, a certified public accountant in Washington state.
However, if payments aren’t made, the mortgage company will go back to the parents, she says. And the parents’ credit can be affected.
Investing in a home can also work for parents that want to be paid back.
Families must be careful planners and good record keepers over time to avoid confusion and intergenerational quarrels. All parties should understand how their respective shares in the equity of the house would be divided and change over time. As children make the mortgage payments, their share of the equity in the house will increase.
“The investment has the potential for conflict because of changes that occur over time,” Guttentag says. “If both parties agree on what the rules are and keep accurate records, there isn’t going to be any conflict.”
And parents may face hard choices if they invest in a child’s home through a loan or by co-signing a mortgage.
“I’ve seen all sorts of really unfortunate things happen,” Bolson says. “Don’t make promises that you cannot keep. Whatever promises you’ve made should be put down in writing.”
3. The Gift of Knowledge: Schwab Pomerantz says the “gift of knowledge” is a good option for parents without the means to contribute cash or invest in a child’s home.
“Very few families have frequent conversations about money and investing,” she says. “So you’re already starting at a deficit in terms of families who talk about finances.”
The lack of conversation is not a socioeconomic issue-families across the wealth spectrum are missing out on these important talks, Schwab Pomerantz says. She suggests “helping kids weed through the various mortgage alternatives to avoid these scandalous offerings that are inappropriate for them.”
Adult children should understand the importance of borrowing within the limit of what they can actually afford, rather than becoming overly indebted to a home.
“It’s never worth it to be house poor. … It limits you from doing so many other things,” Schwab Pomerantz says.
Current turmoil in the mortgage market magnifies the importance of ensuring that all parties understand the terms of a mortgage before buying a home, says Bolson.
“If I’m going to be giving money to my child I need to make sure that my husband is OK with it,” she says. “All parties need to agree.”
Bolson also recommends that a first home for adult children should cost no more that the average for the community, especially when parents are helping financially.
“You want to be cautious about whether this is just the beginning of kids wanting parents to buy what they themselves can’t afford,” she says. She added that in most circumstances parents “should only help with the first home. When (adult children) are ready for the dream home they can trade up to it.”

To view this RISMEDIA report in its entirety: RISMEDIA February 26, 2008.

# posted by Tami DeLand and Steve Hansen @ 4:01 PM

This page is powered by Blogger. Isn't yours?

Tami DeLand and Steve Hansen Empowered to Exceed Your Expectations.
Coldwell Banker Burnet Direct: .. (320) 267-0076
Office: .. (320) 258-6675
3701 12th St. North, #203 Fax: (320) 258-6715
St. Cloud, MN 56303 Send Email to Tami and Steve
Licensed in the State of Minnesota
Coldwell Banker Burnet, 3701 12th St. North, #203, St. Cloud, MN 56303

Saint Cloud, MN Real Estate | Tami DeLand and Steve Hansen
About Tami DeLand and Steve Hansen's Saint Cloud and Central Minnesota, MN Real Estate Website: The www.I-94homes.com web site provides Saint Cloud, Waite Park, Sartell, Sauk Rapids, St. Joseph, Clearwater, Clear Lake, Avon, Albany, St. Augusta, Rockville, Coldspring, Righmond, Becker, Rice, Royalton, Little Falls, Monticello, St. Michael, Albertville, Rogers, Otsego, Maple Grove, Buffalo, Annanndale, Rockford, Corcoran, and Central Minnesota, Minnesota real estate information and resources to guide homeowners, homebuyers and real estate investors through the process of selling and buying a house, condo or other realty property in the Saint Cloud and Central Minnesota area. Tami DeLand and Steve Hansen (sometimes misspelled as Tammy DiLand, Tammi Deeland, Steven Hanson or Stephen Hanson) have services to help you get the best value for your Saint Cloud and Central Minnesota home and this website offers home buyers and home sellers a superior comparative market analysis (CMA), a way to view real estate and MLS IDX listings including virtual tours, prepare your home for sale, and more. Investors looking for real estate investment properties to invest in need look no farther. Anyone selling a home, buying a home or seeking housing can learn more about our realty services, and will appreciate working with   Saint Cloud and Central Minnesota REALTORs who know  the area so well. Through trusted partners, we also provide real estate and financial services to consumers looking for houses for sale or selling their home in Saint Cloud and Central Minnesota, MN, such as mortgages, credit history, new homes, foreclosures and other services. If you've already tried to go the for sale by owner (FSBO) route and find you are needing a partner who you can trust in the sale of your most precious asset, Tami DeLand and Steve Hansen can take care of your special needs. It really doesn't matter if you spell it REALTOR, Realator or Realter, realty, realety or reality, real estate or realestate, Tami and Steve speak  your language.
Great Real Estate Agent Websites for Realtors - Best Real Estate Web Site Design for Realtors (c)2009 HoopJumper WebSystems, All Rights Reserved (949) 309-2299 - Espanol
Bookmark and Share