Solano Real Estate Scene: Teach adult children to fish in real estate

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I always tell parents to teach their kids how to fish rather than give them a fish. Parents, grandparents, aunts and uncles – that can afford it – have been helping kids become homeowners for forever. There are numerous ways to help a loved one become a successful homeowner and avoid the rent trap. The key word is successful because just gaining title to a home is not as important as keeping the title, growing equity and over time establishing financial security. Step one to helping a first-time homebuyer is making darn sure they are ready to take on the responsibility of homeownership by insisting they become educated and prequalified by a lender that is committed to financial literacy. Spending $450,000 and buying a home is always going to have some stress involved, but the level of this stress and anxiety is dramatically reduced if a homebuyer has all the answers up-front. If a person knows exactly how much money they will need and how much their total mortgage payment including taxes, insurance, PMI and HOA dues are going to be before they write an offer, stress is reduced. If a person knows they are obtaining the best type of loan based on their financial statement and knows they are not missing out on some special first-time homebuyer program the lender failed to share with them, stress is reduced. If a person knows they not only can afford the home now but should be able to afford it in the long term, stress is reduced. Educating a buyer up-front and doing a thorough job of analyzing the first-time homebuyer options reduces the stress level for the loan officer and the loan processor, too, because a solid lender, nowadays, not only prequalifies the potential buyer, they process the loan up-front and will get the loan approved, making it possible to close an escrow in 30 days because all that is left to do is the appraisal and the piles of disclosures required today that were implemented after the crash in 2008. “Know before you owe” is the motto and theme behind all of the new government regulations and actually benefits reputable loan officers across the country because dishonest and greedy lenders cannot sell borrowers down the river like they could from 2004 to 2007. When a parent tells me they want to help their adult child buy a house, I always share with them all the ways they can help and teach their kid how to fish. I like to briefly analyze the parent’s financial statement and their goals to determine how that can help with as little risk as possible and occasionally after this analysis, we determine it may be a good idea to sell their son or daughter their home and move down or up themselves. Every case is unique, but here are a few ways a parent or elder can help a loved one buy a home. The most common is a gift for the down payment or closing costs. A gift is the easiest and safest way to help a first-time homebuyer but I always recommend to parents to make sure their loved one has high FICO scores and will be able to afford the home in the long term. A 5% down payment usually helps the first-time homebuyer obtain the lowest monthly payment and rate as opposed to the zero down to 3.5% down options available today. The second way a family member can help is to cosign the mortgage to help qualify or in some cases, an equity share agreement can be structured if the non-occupant and the occupant want to form a partnership and share in the expenses, the tax write-off and the potential gains when the home is sold or converted to a rental in the future. Do not worry, cosigning does not make up for bad credit so if your kid has bad credit and is a high risk, cosigning will not work. Cosigning is an effective way for a first-time homebuyer with good credit to afford a higher home price and payment. A classic example of why a parent might do this is their son or daughter has excellent credit but just started their job as a registered nurse and is making $5,000 per month now but is expecting to make $9,000 per month in a year or two based on average incomes in nursing. I always make it clear to co-signers that monitoring the mortgage payments being made on time is critical because one 30-day late mortgage payment can really screw up a FICO score. I encourage elders who can afford to help to do it carefully and consider it an investment in their loved one because helping your kids learn how to fish in real estate will keep them from having to move home and live with you when they are 40 or 50 years old.