Parents in North Carolina have traditionally tried to help their kids buy their first house by providing some of the cash needed for the downpayment. These days, however, we are seeing parents take even bigger steps to try and help their children with a First Time Home Buyer Program.
Rates are still EXTREMELY low, and assuming Congress figures out the Fiscal Cliff issues in the next few months – they mortgage interest rates should stay low through the Spring of 2013.
There are some basics, when deciding HOW you should help your Children buy their first home, and WHAT you should be willing to do to make that happen.
Down Payment Assistance
“The first rule of thumb is that parents should never get financially involved with their adult offspring unless they are adequately prepared to address their own needs and pending retirement, which may not be far down the road,” says Guy Penn, principal and founder of G.M. Penn Wealth Management in O’Fallon, Mo.
Penn says while there’s no one-size-fits-all answer to whether parents should help their offspring buy a home, it definitely is a bad idea to pull money from a retirement account to give assistance.
We agree. If parents are having to borrow from retirement to help their kids buy a home – probably not the best move. David Ramsey (who we follow pretty closely) would have a COW! Another rule? Don’t expect your children to pay the money back. They’ve just taken on a house payment, and upkeep on a house… Parents who are giving their kids down payment money, should be willing to lose that money and not get it back. We paid our parents back – but it would have been okay, meaning our parents had the money set aside and it wasn’t going to hurt their retirement picture if we couldn’t pay it back on a schedule. (I’m hoping this makes sense)
Remember: USDA Home Loans do not require a down payment, neither does a loan for a Veteran. FHA Loans require 3.5% (it can be a gift)- and depending on the circumstances, a First Time Homebuyer in NC can qualify for a Grant of $8000 from the State.
If your kids can’t get a loan on their own – it’s probably because they have some credit issues. We all know people who came to North Carolina after an extended period of time with only one income, or maybe there was a divorce. There are GOOD REASONS that people have credit issues right now, and it does take 2 credit scores over 600 to get a mortgage loan in NC.
Ways Family Can Help With Credit Issues (right now – credit scoring is a moving target, so this might change any day)
- Help pay a credit card down to $30. We do NOT suggest paying the Credit Card COMPLETELY off, or closing the account. Believe it or not, people who “carry” a little interest will have higher scores.
- Add them as an Authorized User to a Credit Card that was established AFTER they turned 18 that has good payment history and a balance that is less than half of the Available Credit. (They don’t actually need a card)
- Help them open a “Secured Credit Card.” There are some pretty significant initial “FEES” associated with these accounts, but everybody needs at least 2 or 3 open credit cards in their names.
- Student Loans – Deferred Student loans are becoming a problem. ANY help with Student loans, paying one or two of them off – will help those applying for a mortgage.
Remember that if you give your children money to pay a major credit card down, and they apply for a mortgage 3 weeks later – the underwriter is going to ask where the money came from… so keep GREAT records regarding who paid for what, and how the money moved from one account to another.
Educating your kids
The BEST way for family to help their children in the Home Buying experience is to offer them the gift of knowledge. Does this mean we are suggesting you SCARE them to death??? NO! We know parents who have done this, and it’s just like Home Values in Nevada and Florida have gone DOWN… North Carolina Real Estate has NOT had the same problem, and it’s important to keep that perspective!
We think parents should talk to their kids about the rules of thumb of owning a home… How much to expect to spend on Maintenance each year, budgeting and keeping all total debt including housing costs to less than 38 percent of monthly income before taxes. Housing costs, including taxes, homeowners insurance, homeowners association dues, and principal and interest on the mortgage, should be less than 28 percent of gross monthly income.
Co Signor for A Mortgage With Children
Family can purchase a home with FHA and a 3.5% downpayment as long as at least one of the parties will live in the house as their primary residence. So if you have a child with their first job in Charlotte, and you want to go on the loan with them – no problem. We also see this situation when parents have retired, and don’t have a ton of “steady” income coming in to make payments on a home they want. This is a fairly easy program… HOWEVER, you can NOT go on a loan with children who do not have the MINIMUM credit scores to buy a house. Your INCOME and Assets will help a “boarder line” loan – but your good credit can NOT offset their problems.
If you have questions about getting a FHA Loan in Charlotte, or First Time Homebuyer Programs available in Wilmington – call Steve and Eleanor Thorne 919 694 5058. We love North Carolina Homebuyers, we work with TOP Real Estate Agents across the State, and we’d love to help your children buy their first home in Raleigh!