How Your Family Can Help You Buy A Home

In this episode, Jennifer talks about how families are helping people buy homes, especially Gen Z. She covers two main ways this happens: gift money for down payments and co-signing mortgages. Jennifer offers guidance on gift funds, stressing verifying amounts and no expected repayment. For co-signing, she clearly outlines the parents' responsibilities and discusses beneficial versus problematic scenarios. Jennifer's advice is crucial for navigating family financial support in homeownership.

Transcript

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I just read a very interesting study that showed that 78% of Gen Z home buyers get some level of family help. Millennials were in the 50%, Gen X was in the 30s, the high 30s, and boomers, boomers still had 12% help from family members. So today we're gonna be talking about two ways you can have your family help you buy a house. If you're new to this channel, I've been a mortgage lender for close to 20 years. My team's one of the top teams in America. This is what we do all day. I started my business in a part of California that is very expensive. So watching families help people buy houses, it's more norm than abnormal just because it's so expensive. So we're gonna talk about the two main ways that I see families help people buy homes and what you need to know. Number one, gift money. That's right, down payment. Your family members are saying they're gonna help you with the down payment. Now, the first thing I would recommend is talking to them about how much they're comfortable giving you. A lot of times I'll hear, oh yeah, my parents said they'd cover whatever. And I'm like, okay, for you to get this house, you're gonna need $15,000. Can you please go and verify with them? Well, they said they'd cover it. Please go verify with them. They can give you $15,000 and they can give it to you by XYZ date. 10% of the time they come back and they go, Oh, they didn't think it was gonna be that much. They can't do that. Okay, that's a different program that I as a lender now need to look at. Or what can they give? So the first thing you want to do is verify with your family, if they're saying they're gonna help you with a down payment, how much they're comfortable giving you. The only time that I see where someone's like, they're not gonna give me a number till you give me a number, Jen, is generally super wealthy. They'll say literally, what do you need? And and we could say $250,000, and they would say, fine. Even still, verify with your family member that they can provide that money quickly. Because even if they're super rich, they may have it tied up, they may have it in stocks, they may have it in private investments. So liquidity is key. Okay, the next thing people ask is, well, they said I have to pay it back. That's not a gift, okay? I want to be really clear on this. If your family member is gifting you money, the loan guideline is they cannot expect repayment. If they expect repayment, that does not go towards down payment. That is a second loan. So I wanna be crystal clear on that. A gift means they do not expect you to pay it back. Now, can you have multiple family members gift you money? Can grandma kick in and Uncle Bob and Sammy? You know, yes, yes, you can have multiple family members contribute towards your down payment. We're starting to see this with weddings now. Instead of asking for, you know, really expensive silverware, people are asking for contributions towards a down payment, which I think is great. Now, how do you receive that money? We're gonna talk about a lender's nightmare and a lender's fantasy. Cash, please no, I can't source it. As a lender, I have to source all the money. So if you're like, I've got 20k in cash, that's a problem. I'm not gonna be able to use it in most situations. My fantasy, and this is how I would do it. If I'm helping my son buy a house, this is what I would do as a parent. I would wire the money to escrow. And you're like, but I haven't even found a house yet, and I need to get pre-approved. So how does that work? Simple. As a lender, I'm gonna ask you, how much will they give? Okay, can you have them fill out this gift letter? The gift letter literally asks for their name, the bank they're gonna use, how much, and the account number. That's it. That's all I'm asking for. I'm not asking for a sample of their blood, I'm not looking at their tax returns. I need a gift letter so that I, as a lender, know and I'm pre-approving you off of the fact that this money is gonna come in. Then when you find a house and you're in escrow, at that point we would say to your parents, hey, like we need you to wire the money to escrow. Escrow would provide third-party wire instructions to your parents. Easy. Parents, family members, whomever. Blood, okay? We're keeping this family. So that's my dream. Now, in many situations, they may have already given you the money, and that can just lead to additional documentation where we have to paper trail. And there's certain loan programs where we may ask your parents to see the money leave their account. That is something none of them enjoy. They don't like that. So, top tip if you guys have not gotten the money from your parents yet, gift letter, and then they're going to wire it to escrow. Very important. Now, the next way that I see family members' parents help people buy a house is co-signing. So let's talk about co-signing with mortgages. Number one, are they on the hook if you don't pay? Yes. If you're late, will you destroy their credit? Yep. If you default on the house, will you and them have a foreclosure? Yes. Yes. So the most important thing if your parents are going to co-sign is they have to understand and be comfortable with this. Depending on your relationship with them, they may be comfortable with it. It's funny, a couple years ago, I filmed a video, probably seven years ago, where I was like, I would never co-sign for my son. Da-da-da-da-da. He was a kid at the time. You know, different story now. I would cosign for him in a heartbeat, in a heartbeat, because I've seen the man he's become. I trust him. I've seen his credit. I've seen how he handles money. So your parents may be very comfortable co-signing, but honestly, truly, if you're like, oh, I never pay my bills on time, yeah, please don't have your parents co-sign because you would be taking them down with you. And I do think it's totally fair for you to have to provide to your parents for the first few months, showing that you're making the payment. And if you're like, oh, I'll just put them on an account with me, then they can see it. Don't do that. Because if your parents want to buy another property and they don't want to be hit with the payment on yours because you're making that payment, they can't be on the account that the money's coming from. Okay. I know that sounds really in the weeds, but I want to say it loud and clear because I've seen it affect the parents long term. That's why it's so critical that when you're doing this, you are working with a mortgage loan officer that knows their stuff. And it's because the structuring of this, this needs to be structured to be beneficial for the whole family long term. It can't be short-sighted. And many loan officers are very short-sighted. Okay, so if they're cosigning for you, where do I see it make sense and where do I see it not make sense? I think it makes sense if you can afford the payment on your own, but your income doesn't show it from a traditional lending lens. So what do I mean about that? I mean maybe you're self-employed and you write everything off. Maybe you started a business, it's the first year, I can't use it as income. Maybe you work a commission job, but you just switch to commission, you're doing really good, you're making a ton of money, but you don't have a long enough history where I can use it. Okay? I think having a parent cosign in those situations is great because you can make the payment on your own, you know it, it's just your income doesn't fit the traditional lender lens. I see this a lot with self-employed buyers because yes, there are now bank statement loans with which five, 10 years ago there weren't. But the interest rate's gonna be better on a Fannie Mae or Freddie Mac loan than a non-QM, meaning exotic loan. So having a parent cosign can be a great way to get into the house. Now, it's also important that you're talking to your loan officer about which programs allow a parental cosigner and what it ultimately means. So, like VA, if your parents are not veterans, it's a problem. Also, I have to be able to show that you can make the payment. So if they're on there and I can't show that you can make the payment, it doesn't work for VA. Okay. Conventional, it's pretty easy, guys. VA, different story. So it's important that you're talking to your mortgage loan officer about this as well, depending on the loan type you have. Now, where I think it gets problematic is, and I've seen this, so sometimes I'll have parents where they're like, they want the kid in a certain neighborhood, but they can't afford it. The their child cannot afford the neighborhood the parents want. So the parents are doing the down payment, the parents are co-signing, but the parents don't want to help with the monthly payment. So it's very important that you can afford that monthly payment on your own, or your parents have committed to subsidizing it forever. And I say forever because a lot of times people go, Oh, well, I know you'll make more money and you'll be able to afford it in five years. What if they can't? What if they can't? That's a lot of pressure to put on someone, you know, saying, Hey, I'll help you with the payment for the first year and then it's on you. That's a lot of pressure. So I would always recommend if your parents are co-signing, you still need to be able to make the payment. And if you can't make the payment, they need to be comfortable subsidizing you forever, just in case. Just in case. Okay? So I could go on for hours about this. I've done so much of this in my career. Um, and it's really interesting. There's always different scenarios. You know, sometimes we'll have it where the parent buys the house, and then down the line, um, the child refinances the parent off. Like there's a whole different way to work all of this. So just make sure you're working with someone that can really help you. I hope this was helpful. Thanks for watching.