March 1, 2018
March 1, 2018
It’s frequently necessary to get mom and dad’s help in navigating the mortgage approval process. But that can be a touchy subject in some families. Let’s take a look at the kinds of help that parents can provide, the reasons why they might want to provide it, and the best way to ask for that help. We’ll also touch on your obligations in accepting that help.
There are two primary ways that parents can help you with the purchase of a home. One is by cosigning the mortgage, and the other is by providing a cash gift.
Cosigning the mortgage. If you have insufficient income for the house that you are buying, or if your credit is spotty, adding a strong cosigner to the mortgage application can help you get approval. Parents are a natural choice.
Cash gift. Often the biggest hurdle for new home buyers is coming up with sufficient cash for the down payment. This can be a special problem in high-cost areas, that require even larger down payments based on higher sale prices. If you don’t have enough money to make the down payment on the house that you want, your parents can provide a gift to cover the funds needed.
There’s a secondary situation in which a cash gift can help you to purchase a home. That is where you get a gift from your parents to pay off certain debts. For example, let’s say that your debt-to-income ratio (DTI) is too high, and is preventing you from getting an approval on your mortgage application. If your parents provide a gift to pay off one or more debts – such as a car loan – that can lower your DTI enough for you to be approved.
It can sometimes be uncomfortable asking for help from mom and dad when making a major purchase, like a house. But it may help you to understand the reasons why they might actually want to offer their assistance.
They may want to be involved in the process. Buying a first home is a major step in anyone’s life. Parents may want to be involved in that major step along with you.
They may have helped your sibling(s). If your parents have helped any of your siblings to purchase their own homes, they may be more than willing to help you. In most families, parents want to keep the assistance balanced between their children.
They may want to help you get a home of your own. If your parents are homeowners, they may not necessarily approve of the fact that you are currently living in an apartment or renting. They may be so anxious for you to become a homeowner that they are more than willing to help you get there.
They may know you can’t do it on your own. Perhaps you had a run of bad luck, or maybe you have a child on the way. In either situation, your parents may already understand that you are unable to buy a house on your own.
You live in a high-cost area where parental help is a given. In some high-priced housing markets, it’s nearly impossible for a young family to purchase a home on their own. Your parents might fully understand that, and be ready to help when you’re ready to buy.
They may want to ensure that their grandchildren grow up in a home. If you have children, it’s entirely possible that your parents will have a strong preference to see them grow up in a house of their own. For that reason, they may be more than willing to help you get into a home.
Your parents might have received help from their parents. This is something of the quid pro quo of life – parents help their children, and when the children become parents, they help their kids. If your parents got help from their parents to buy their first home, they might have no problem providing you with similar assistance.
Whether you are uncomfortable asking your mom and dad for help, or you are sure that it won’t be a problem, there are a few strategies that you should keep in mind before you ask.
Ask at the very beginning of the home buying process. If you even think that you might need your parents help, either in cosigning the mortgage or in providing a gift, you should discuss it with them before you even go house hunting. Not only will this help you to know exactly what level of help you will be getting from the very beginning, but it will also give your parents time to prepare.
Let them know you’re serious about the purchase! Your parents may be less willing to provide help if they think that you’re only casually interested in buying a home. Instead, make your intentions clear, and be prepared to give them concrete reasons for your decision to move forward. They may feel more comfortable in helping you if they feel that you’re fully committed to making the purchase.
Ask for their help – never demand it. This is a critical point. Even though they are your parents, they are under no obligation to help you buy a home. For that reason, you need to ask for their help, and not assume that it will be automatic. This is where you are acknowledging that your parents have a choice in the matter, and that’s an attitude that they’re more likely to respect.
Make sure they have the capability to help. This can be a sensitive topic, but it’s one that you will have to breach. You should be certain that whatever level of assistance your parents are providing won’t leave them in an impaired financial condition. In fact, if you find out that it will, that might be easier for you to accept than simply hearing them say “no,” and not telling you the real reason why. Just don’t probe too deeply here – your parents may be reluctant to tell you that this is the reason why they can’t help. You will need to be sensitive to any kinds of signs or indirect language that makes the point.
Do your part in the loan application. If your parents agree to help, remember that it is only help. That means that the primary burden in the mortgage application process is still on you. The fact that your parents are willing to help doesn’t mean that they are going to assume primary responsibility for the loan application process.
Involve mom and dad in the buying process. This could mean taking them out to look at properties. Or it could mean asking them to give their opinion on the property that you have selected. After all, if they are helping you to get the home, they should have at least some input in the final decision. Respect that.
It’s better to ask in person. 20 or 30 years ago this would not have been a consideration. But in this age of widespread texting, it’s more than worth a mention. If you’re going to ask your parents to help you buy a house, don’t do it by text. And while a phone call is better than a text, nothing beats face-to-face. It’s a serious decision and one that may require some back-and-forth, at least regarding the details.
If your mom and dad do help you to purchase a home, make sure that you are dutiful in carrying out any obligations or conditions that are attached to the assistance. For example, if they’ll be loaning you money, make sure that you repay it. They may need it for their own purposes, perhaps even for retirement.
If they agree to cosign the mortgage for you, do your best to have them removed from the loan as soon as possible. Once they cosign a loan for you, any late payments that you make on the mortgage will show up on their credit report. Also, the monthly obligation on your mortgage could be charged against your parents if they apply for a loan in the future. Plan to refinance the original mortgage as soon as you can, to release your parents from that obligation. It’s the right thing to do.