You probably thought you were done asking for your parent's help. But as you begin to get a feel for the housing market in Los Angeles you may realize that you are going to need some help to get the place you really want. I bought my house 18 years ago and without my dad’s help, I could not have done it. Owning my home changed my life in a profound way and I continue to thank him to this day.
You may be lucky and your parents have offered to help without you having to ask. But even under those circumstances, it's best to understand the dynamics of asking for help in order to ensure you get what you need, not just what they are offering to do.
Keep in mind that there are tax implications for the gift. Your parents can give up to $14,000 ($28,000 if the gift is for you and your spouse) without tax penalty. You will want your parents to speak with a tax advisor before executing any plan.
The first thing you need to do is decide what exactly you are going to be asking for. There are a number of ways parents can help their millennials purchase a home.
If the parents are financially well off, they can simply buy the house and gift it to you. There are ways to avoid paying the gift tax in this scenarios and having their cash can be a huge benefit to you when you make an offer on a property.
- The parents can offer a loan
- They can co-sign the mortgage
- They can help with the down payment.
Having your parents contribute to your down payment is the most common and probably the easiest way to get your parents help.
Once you have decided on what you are going to ask your parents for, you need to prepare a plan of action. Be clear as to whether you are asking for a gift or a loan.
Understand why your parents would want to help you purchase a home. They love you and probably want to see you settled and in a safe environment. They may be motivated by the satisfaction of being able to help their adult children. Or they may see the purchase of a home as a necessary step towards getting the grandchildren they so desperately want.
Your parents may be more inclined to help if it is presented as an investment that benefits them. No matter what their motivations may be, approach them with their interests in mind. Also keep in mind how this might impact your family dynamics, especially in regards to siblings. Tread carefully and keep in mind you do not have to share any of this with other members of your family, though be prepared for your parents doing so.
Next, get prepared. Treat this as though they are the loan officer at the bank. You should get prequalified for a loan by a lender. Be honest with your folks about your financial situation, share your income, debts and FICO scores; these are things you will need to do anyway and it will go a long way towards showing them you are serious
You should be knowledgeable about the real estate market in the areas you want to buy in. Solicit help from your agent. It’s a good idea to have an agent on your side before you approach your parents. Depending on their level of involvement you will be in a better position to control the process if you have hired an agent. Your agent can prepare a market analysis showing what houses are selling for and how fast.
Finally, ask for their help in person. Drop hints first, tell them you are looking at buying a house, but sit down with them to review what you are asking for. Bring some listings, your prequalification letter, and market data to ensure they see that not only this is doable, but engage them in the process, they may enjoy the house hunting as much as you.
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