First-time homebuyers are getting family assistance for the down payment.
With the economy, and with tightening up on lending, getting that down payment for a home can be more difficult these days.
As a result, more first-time home buyers are turning to Mom and Dad and other relatives for financial assistance in buying that first home, according to recently published news stories by the Washington Post and Investor's Business Daily.
About 26 percent of all first-time buyers get financial help from a relative for their home purchase, according to data from the National Association of Realtors. Relatives can help out first-timers by gifting a down payment, co-signing a mortgage or making a loan to a first-timer for the purpose of buying a home.
According to IRS rules, a taxpayer can gift up to $13,000 tax-free to any one person in a given year. Meanwhile, if a relative chooses to offer a personal loan to help out a first-time homebuyer or to co-sign a loan, there are hurdles to navigate. A loan from a relative can make it more difficult to get a bank mortgage, says Kathleen Doler for Investor's Business Daily. If a relative were to co-sign a loan for a first-time buyer, they would also be responsible for the mortgage should the buyer default.
Because entering into financial agreements with family can get thorny, experts urge all parties to talk everything out and get everything in writing before entering into any such agreement.
And for those first-timer buyers thinking of accepting a loan offer from family, there's another complication to consider: wary sellers. One couple profiled by the Washington Post put in bids on two different homes this year and lost both of them. The reason they were rejected? Quite possibly because some of the money they planned to use for the purchase was being loaned to them by family members, the Post says. The sellers most likely thought that they wouldn't be able to come up with the cash needed for the sale, the buyers said.—Lauren Baier Kim