Mortgage Blog

More parents helping kids buy homes than ever

July 22nd, 2015 7:24 AM by Michael and Jill Kohler

More Pa parents helping kids buy homes than ever

Although Pa mortgage rates remain at low levels, many would be Pa first time home buyers just out of college lack the substantial down payment needed to purchase their first home. Think about it.  In order to put down the standard 20% on their first time home purchase of a $200,000 home.  That's $40,000! A substantial sum by anyone's standards. Add some closing costs, title insurance, an appraisal and a few standard home inspections and now we're talking about close to $50,000!

So who are they turning to?  Bank of Mom and Dad, of course! 

The average 23 year old student coming out of a 4 year college (if they are lucky enough to finish in 4 years)  just spent approximately $15,000 or more to go to a state school per year. That's $60,000 over 4 years.  Most of it likely financed through Stafford Loans or other Fafsa options. So you're coming out of college with a degree (which is great)  but maybe in debt for maybe $40,000 or more of loan payments which might kick in within the next couple of years. 

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If the student gets a $50,000 job within 6-12 months of graduating from college, their cash flow is $4000 a month or so. Quickly they move out of their parents house and begin renting (anywhere monthly from $500 on the dirt cheap side) up to $1200 a month or more for a small single family home or quite a bit more for an upscale condo.  Of course, living expenses now kick in. Heat, electric,oil, gas, food, hot water, cable, cell phone bill, new car payment, insurance, gas, taxes etc for starters, and that's not counting those school loan payments which are now due! Start adding and you can easily see how difficult it can be for a young adult to save up a substantial down payment to buy their first home. 

Enter Mom and Dad. Late 40's to mid 50's. Bought their home years ago. Maybe were lucky enough to pay it off by now, but not most people. They may have some retirement savings in a 401k and/or some equity in their home, and maybe some savings in the bank.  One way or another, many parents are in a position to help their children.

One way is through a limited 3.5% down payment FHA loan.  Mom and Dad may not have $50,000 to part with, but they may have $10,000 and that may be enough. If junior has a few thousand or more saved to buy some furnishings, etc. Mom and Dad can gift their child the down payment money and it most likely will qualify as an acceptable source of downpayment.  Sure, they'll be paying some FHA mortgage insurance on the loan, and no, it's not cheap!  But they get the house...

....and this is how we are seeing more and more young adults accomplish the dream of becoming a First Time Home Buyer today. 

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Posted by Michael and Jill Kohler on July 22nd, 2015 7:24 AM


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