David Saks: Here Are a Few Ways That Mommy and Daddy Can Help You Buy the House

David Saks - Real Estate Broker - The Real Estate Mart of Tennessee, Inc. - 4040 North Watkins-Suite #4 - Memphis, Tennessee 38127 - Phone (901) 357-4663

Here Are a Few Ways That Mommy and Daddy Can Help You Buy the House

Can Your Parents Help You Buy the House ?

You might have a little money. But not enough to go for your dream pad.

Mommy and Daddy have adjourned from the rat race and are enjoying their senior years.

Can your parents help you buy the home ?

That might be a possibility. Your mom and dad have to be certain that it won't be a strain on their resources. They need to know that they'll have enough money to make ends meet month after month.

If your parents have any collateral, assets or anything of useful value we might begin here.

Let's start with a 200 thousand dollar home.

The first option is that mom and dad could purchase the house outright in their name. You could rent it from them with the benefit of a tax break. They could then gift it to you annually and get a tax break based on the percentage of the purchase price (consult an attorney to get those figures). They can give you an annual deed based on the annual percentage until the percentage allowed by law is reached, and finally you own the house.

Another possibility is that you would share the ownership. Mom and dad can buy the house with you and you can take title as a tenant in common so that your parents' share in the property will revert to their estate upon their death, they can allow you unequal share, i.e., you get 75% and they get 25%, or you can take joint tenancy and have the rights of survivorship assigned so that in the event one of the owners dies the others will get the interest in the property. You can still get some tax benefits from these arrangements, but again it's best to consult a tax advisor or an attorney to find out what these are. Everything has to be spelled out in writing before hand, so carefully consider these options.

You could also buy the home with a partial loan that would offset the amount of borrowing from your lender. You could borrow 100 thousand from your parents and 60 thousand from your lender with 80% ltv instead of 160 thousand from the lender.

Then there's always the possibility that Mom and Dad will lend you the whole 200 thousand bucks. You'll agree to repay them over time and take title to the house in your name after you've signed a note that promises to make good on the debt. You'll get the title, but I believe that the deed of trust will have to be recorded in favor of Mom and Dad. Again, check with your attorney. Your county register might also have some interesting things to say about this, too. The interest portion of the payoff is taxable to your parents, however, if they finance it for you. I believe that parents are allowed to give lower rates of interest to their children under the law, but again, check with the attorney. They might also be able to gift a portion of the loan to you annually additionally deriving tax advantages.

So take time and review your options. You'll probably be in your new home for years, Mom and Dad might get some nice tax breaks, and the love from your parents gift will help the new generation that you're thinking about bringing into this good old world of ours. You'll raise them in a house that you can now call a home, thanks to Mommy and Daddy's love.

 

 




David Saks



Time&Temp Memphis

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Comment balloon 42 commentsDavid Saks • July 29 2013 08:16AM

Comments

The responsible thing would be to get a partial gift and mortgage the rest so that the full benefits of the home are appreciated by the child

Posted by Ed Silva, Central CT Real Estate Broker Serving all equally (RE/MAX Professionals, CT 203-206-0754 ) over 6 years ago

Sounds like a good plan, Ed. Nice to hear from you.

Posted by David Saks ((retired)) over 6 years ago

That's a lot of options.  The one I most commonly see is Mom and Dad gifting the down payment money to the child.

Posted by Chris Ann Cleland, Associate Broker, Bristow, VA (Long and Foster REALTORS®, Gainesville, VA) over 6 years ago

David -- thanks for sharing the variety of options that might be possible.  Of course, with a gift, they will want to talk to the financial accountant to make sure they don't trigger additional taxes.

Posted by Steven Cook (No Longer Processing Mortgages.) over 6 years ago

The gift could probably provide a nice return on the investment with the tax break, Chris Ann.

Posted by David Saks ((retired)) over 6 years ago

Great advice, Steven. Hope your having a fine day.

Posted by David Saks ((retired)) over 6 years ago

David I think it all depends on the situation of the parents and the kids. I have seen many gifting of down payments and I have seen parents pay cash for a property for their children for outrageous money, they were Northwestern Students here in Evanston IL. The kids had expensive cars and an arrogant attitude, but were good students or else they would not have been admitted to NU. 

Some parents want to see their kids enjoy their money before they are gone hopefully upstairs and not down.

Interesting post that could make or break a deal.

Posted by Noah Seidenberg, Chicagoland and Suburbs (800) 858-7917 (Coldwell Banker) over 6 years ago

The potential benefits parents and children may derive, Noah, look good. I wonder if taxable interest might complicate life a bit during retirement years, however ?

Posted by David Saks ((retired)) over 6 years ago

Certainly lots of options. I think the child should have some skin in the game. Much better if they appreciate the investment.

Posted by Bill Reddington, Destin Florida Real Estate (Re/max Southern Realty) over 6 years ago

Any child would be lucky to have parents help with the buying process, other than just "butting in or giving their two cents worth"!

Posted by Christine O'Shea (Christine E O'Shea Broker-Associate) over 6 years ago

Thanks for pointing out 4 different ways that parents (and sometimes other family members) can help another family member buy a home.

Posted by Michelle Cherie CarrCrowe Just Call...408-252-8900, Family Helping Families Buy & Sell Homes 40+ Years (Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty) over 6 years ago

Great post about the different ways to have your parents help out.  Thanks for sharing

Posted by Brian Sharkey, SharkeyRE - #SouthFloridaBroker (SharkeyRE LLC) over 6 years ago

I would have never ask my parents to help me buy a house.

Posted by Tammy Lankford,, Broker GA Lake Sinclair/Eatonton/Milledgeville (Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668) over 6 years ago

Or mommy and daddy could tell the kid to get a job lol...just kidding.  Lots of parents help buy their child's first home.  I think it's important that they have some investment in it as well though...those are my opinions though, it's really up to the parents :).  

Posted by Brenda Mullen, Your San Antonio TX Real Estate Agent!! (RE/MAX Access) over 6 years ago

Most of the time we see 1 of 2 things occur.  The parents gift the deposit money or the parents take back a note for the entire or partial purchase price in whole until such time as the kids have the ability to obtain a loan on their own to pay the parents back.

Posted by Jay & Michelle Lieberman, Creating Calm in the Buying and Selling Chaos (Keller Williams World Class) over 6 years ago

This is a very informative post. There cetainly are options for buyers.. however, they definately shoul consult with professionals such as an attorney/accountant and tax adviser before making a decision.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 6 years ago

Good advice, Bill. Glad to hear from you.

Posted by David Saks ((retired)) over 6 years ago

No question about it ! They absolutely would, Christine. Nice to hear from you.

Posted by David Saks ((retired)) over 6 years ago

Thank you, Michelle. Hope you're doing great.

Posted by David Saks ((retired)) over 6 years ago

Many thanks for your note, Brian. Hope you're having a fine day.

Posted by David Saks ((retired)) over 6 years ago

Thanks for your comment, Tammy. Have a fine week ahead.

Posted by David Saks ((retired)) over 6 years ago

You're right, Brenda. It's an important decision and one that carries a great deal of responsibility and trust. Glad to hear from you.

Posted by David Saks ((retired)) over 6 years ago

Gifting may have some great tax advantages, Jay and Michelle. Of course, only the family attorney knows for sure :-) Happy to hear from you.

Posted by David Saks ((retired)) over 6 years ago

You're absolutely right, Joan. Very nice to hear from you.

Posted by David Saks ((retired)) over 6 years ago

Don't forget the always popular Dad will you cosign for my loan option too

Posted by David Shamansky, Creative, Aggressive & 560 FICO - OK, Colorado Mtg (US Mortgages - David Shamansky) over 6 years ago

Right you are, David. Hope you're having a fine day and that all is well.

Posted by David Saks ((retired)) over 6 years ago

David, this post is a good starting place for parents who may want to consider helping their offspring get a place they can call home.  The post provides great questions for an attorney and a financial adviser.

Posted by Sharon Parisi, Dallas Homes (United Real Estate Dallas ) over 6 years ago

You have me thinking and it is a great and very informative post. The kids are having a tougher time today to buy into the american dream. We have to seek ways to help them.

Posted by Jimmy Faulkner, The Best Of St. Augustine (Florida. Homes Realty & Mortgage) over 6 years ago

Thank you, Sharon. Always nice to hear from you. Hope your week is off to a fine start.

Posted by David Saks ((retired)) over 6 years ago

Agreed, Jimmy. Many thanks for your great comments. Hope you have a fine day ahead.

Posted by David Saks ((retired)) over 6 years ago

I see that times have changed and more parents are willing to help! I would have never asked my parents to help with my home purchase.

Posted by Donna & Larry Johnson, Chester & Delaware County (Keller Williams Real Estate) over 6 years ago

A parent's assistance is considered an act of devotion to some. Not just a business decision. Some of the adavantages and benefits are worth their effort to assist, if they're able, which includes a peace of mind knowing that you're partnering in your son and daughter's financial future, Donna and Larry. That's one of the greatest investments I can think of ! Nice to hear from you.

Posted by David Saks ((retired)) over 6 years ago

More than one generation under the same roof happens a lot out of financial necessity and not limited to The Waltons series.

Posted by Andrew Mooers | 207.532.6573, Northern Maine Real Estate-Aroostook County Broker (MOOERS REALTY) over 6 years ago

This is a really useful post with our big first time buyer demographic in Toronto. 

Posted by Anne Lok, Toronto Modern Real Estate (Blue Elephant Realty Inc., Brokerage) over 6 years ago

Or the Real McCoys, Andrew.

Posted by David Saks ((retired)) over 6 years ago

Thank you, Anne. Hopes for your continued success.

Posted by David Saks ((retired)) over 6 years ago

Thanks for sharing your options with us. It seems to me that parents would need to think some of these over carefully. I think that the trust and dependability of all parties would become very important.

Betty

Posted by Team Honeycutt (Allen Tate) over 6 years ago

It is good to know there are options out there for buyers who need assistance. Thanks for sharing the information.

Posted by Pat Champion, Call the "CHAMPION" for all your real estate needs (Coldwell Banker Camelot Realty) over 6 years ago

Just remember if you share the purchase or are renting then Mommy and Daddy will have a huge say over what you do to the home.

Posted by Than Maynard, Broker - Licensed to List & Sell - 405-990-8862 (Coldwell Banker Heart of Oklahoma) over 6 years ago

Trust is the key, Betty. We'll all breathe easier. Always glad to hear from you.

Posted by David Saks ((retired)) over 6 years ago

Thank you Pat. Hope you're week is progressing smoothly. Nice to hear from you.

Posted by David Saks ((retired)) over 6 years ago

That's true, Than. However, your love for and consideration of your parents needs is different than your love for your lender. A smart sibling will understand the dependency their parents have on their resources in their senior years and partner with them. Parents may also consider the reversionary provisions to their children of a life estate which could provide for their care. Nice to hear from you.

Posted by David Saks ((retired)) over 6 years ago

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