Helping family with homeownership

real estateThe holiday season is about spending time with family and enjoying each other’s company. But as a consequence of the Great Recession, some family members (including adult children) have made “family time” a year round thing by moving in. Whether it’s a child moving back with parents after college, or maybe family who suffered a financial hardship; having accommodating family can be a blessing. However, as the economy slowly improves, the post-recession family nesting trend is changing and many are (re)establishing their own homes.

Some people are taking advantage of an improving housing market to create one of the recent housing trends – purchasing an investment property to “house” family members. Although the benefits of purchasing an investment property and having family live there may not be obvious, some realize that it can be mutually beneficial. Having a trusty and inherently loyal family member live in the rental property can mean a regular rent check, as well as ensure that the home is maintained. As with any investment property – the longer you own it, the greater potential for long term equity.

Some are banking on recent rising home values and taking out a home equity line to purchase investment homes, although some are fortunate to have the assets to pay cash. However, many rely on financing the property, which requires a hefty down payment (typically 20%) as well as an interest rate slightly higher than that of the owner-occupant mortgage you might have on your own home. And although buying an investment property to house family members sounds as if it is a no-brainer to get them out of your own house; due diligence is required to determine if this is advantageous for you, as well as consulting with your tax preparer about tax benefits and/or consequences.

If buying the investment property is not an option, you may be able to help family qualify for a mortgage of their own. Although FHA mortgages are typically common among first time home buyers and/or buyers who need a low down payment loan; FHA has been the go-to program for helping family buy a home –especially when the home buyer falls short of qualifying on their own because of a lack of employment history, assets, and qualifying income. Although Fannie Mae, Freddie Mac and VA permits co-borrowers who are not intending to live in the home to co-sign for family; FHA has additional features that may make the loan more attractive. Besides allowing family to gift the borrower’s down payment, FHA may allow alternate credit sources to be substituted when the borrower has insufficient established traditional credit.

Although “co-signing” as a non-occupying co-borrower might help your child or some other family member become a home owner, it should not be taken lightly. You have to consider that even though you do not intend to live in the house or make the mortgage payments, you are signing the mortgage note. Not only could you be held responsible if payments are not made, your credit may even be dinged even if payments are late.

Although there are benefits to having extended family live together, you might be thinking of helping them start their own household. Before making any decisions, do your due diligence. And talk to several lenders, as with any mortgage loan program – underwriting varies from lender to lender and guidelines typically change without notice.

© Dan Krell

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