How to Help

Written by Posted On Thursday, 20 June 2024 00:00
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For family members who are just starting out in the workforce or who have rented for a while, at some point they’ll start thinking of owning instead of renting. Renting for a period of time is a good thing because there are a lot of things to consider. When you rent, if you decide you don’t like the neighborhood after all, you can find another place once the lease has expired. With a home, it’s not really something to walk away from. At least without consequences. So what can you, as a parent or relative, do to help someone buy a home?

One of the ways is to provide a financial gift. This may also be the most common form of assistance. However, don’t just wire the funds over without a little preparation. Individual lenders can have their own requirements for documenting the paper trail of a financial gift but in general, you can expect a couple of things. 

One, you’ll need to compose a gift letter. This is literally a letter stating that you’re giving a financial gift to help buy a home. Two, the lender may want to make sure you have the financial wherewithal to afford making such a contribution. This means being willing to provide bank or investment statements from the account(s) you’re pulling the money from to show that not only do you have the funds available, but the gift won’t present any financial hardship to your own situation. Most people wait until the day of settlement to wire the funds over to the settlement table. But you first need to show you can afford the gift without any hardship on your part.

You can also help by co-signing on the note. If you do, it’s important to note that your credit report will be hit. At the same time, the new mortgage payment, including taxes and insurance, will then be added to your own debt load. Even if you’re not going to live in the new property, your own debt ratios will go up as a result. This could possibly affect your own ability to finance another home at some time in the future. Cosigning on another mortgage will be a new credit obligation. This also means that should there be a late payment showing up, that late mortgage payment will hit your credit scores as well, in addition to you stepping in and making the payment on their behalf. 

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending. 

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country. 

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