Buying a home is exciting and fun but can seem financially overwhelming. With rising rents, increasing interest rates and a strong real estate market, some people think they may never be able to save enough money to buy a home.
Here are a few ways that family members may be able to help you realize your homeownership dream sooner than you may think.
1. Gift
A monetary gift from a family member is one of the cleanest and easiest ways to supplement the funds you will need to buy your home. For example, boosting your down payment enough to avoid private mortgage insurance (PMI) could save you thousands of dollars a year. This gift could also be used for closing costs associated with your mortgage or could simply act as a “cushion” in your bank account in case of an emergency. If gifted money is an option for you, be sure to discuss this with your lender as each lender or mortgage type could have specific rules regarding monetary gifts for the purchase of a home.
The amount of the gift is really only limited to how much your friend or family member is willing to give you. However, your generous family member should keep in mind that the IRS will allow anyone to gift up to $15,000 (in 2018) to another person without having to file a gift tax return. So, it is possible for a parent to gift $15,000 to you and another $15,000 to your spouse. If they gift any more than that, they will be required to file a gift tax return with the IRS. Of course, it is best for everyone to seek the advice of a tax advisor before gifting this amount of money.
2. Mom & Dad Bank Inc.
If you have a family member with cash to invest, they may be willing to replace the traditional mortgage lender and loan you all the funds needed to buy the property. This could be a win-win situation for both of you because their loan may earn a higher interest rate than a savings account while still charging you an interest rate lower than a traditional bank would charge. In addition, this method could save you money on closing costs and maybe even avoid a downpayment all together. This method is a bit more complicated than simply gifting the money because there are minimum interest rate requirements, the mortgage should be recorded with the county clerks office and there will be IRS requirements that need to be met. This can all be handled by your local real estate attorney however.
3. Co-Signer
A parent or other family member may be willing to co-sign a mortgage with you. This means that your parent must meet the lender’s credit requirements and sign all of the loan documents at closing. The parent will then be equally responsible for the payment of the loan and their credit could be affected thus making it harder for them to obtain approval for other loans if they are needed. This could be a great situation for you if your credit isn't quite strong enough for the lowest interest rate. However, co-signing a loan is a big commitment so parents should be sure they understand all the details before moving forward.
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Brent Burns has been a resident of Indialantic for 35 years and is a REALTOR® with the Carpenter | Kessel Team. Brent serves clients in Indialantic, Melbourne Beach, Indian Harbour Beach, Satellite Beach and surrounding communities.