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Buying a House? Your Parents Might Want to Help

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Justin Sullivan, Getty Images

People buying a house who can’t get a loan the traditional way are sometimes tapping a less conventional source: their parents.

According to data from the National Association of Realtors (NAR), about a third of first-time buyers last year got either a gift or a loan from their families to help finance a home purchase. But industry observers think such generosity could be even more prevalent, with some parents lending their adult kids enough money to buy a house outright.

Guy Cecala of Bethesda, Maryland-based Inside Mortgage Finance says that last November, all-cash buys among first-timers hit a high of 13 percent, up from six percent in 2009. And while the source of those funds isn’t always clear, Cecala said that when first-time buyers buy outright, it’s likely their parents who are doing the purchasing.

Sometimes it’s because those adult children don’t have enough money for the down payments many lenders now require, but in other instances, they simply don’t have the credit scores needed to qualify for loans or the best rates on them.

For their part, parents don’t necessarily feel put-upon when asked for assistance. In fact, a September survey by Better Homes & Gardens Real Estate and Research Solutions Inc. revealed more than half of Baby Boomers earning at least $75,000 said they actually wanted to help their kids finance a home purchase, and more than 20 percent have co-signed a home loan for an adult child or provided a gift or a loan to help them buy.

But Rich Arzaga, a Certified Financial Planner and CEO of Cornerstone Wealth Management in San Ramon, California, says parents should be careful when venturing into such arrangements, advising they first speak to a financial advisor about the tax implications — and consider whether or not their kids are actually ready to manage the burdens of home ownership.

[Reuters]

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