Getting Mortgage Help from Parents
Article by Peter Dellane
In the United States, real estate prices have jumped dramatically in recent years adding half or doubling the price for similar size homes. This has come as quite a problem for many working young people who are finished with school, have a great job, but still cannot afford to get into a mortgage for a home or a condo. For this reason, many parents are stepping in to help their kids secure good mortgages in order to build their future financial security. Not only that, but parents can also benefit greatly by helping their children buy real estate by making some extra income through appreciation. Even though the housing market flattened off slightly this year, credit application grew tougher, and young people are still finding it extremely difficult to secure a mortgage. Mortgages backed by parents are one of the simplest and healthiest ways for young people to get the mortgage they need while still making some extra retirement income for Mom and Dad. Unlike interest-only loans, piggyback mortgages, or adjustable-rate loans, a mortgage backed by parents is much less risky and will be much more affordable. There are many different ways to go about setting up a parent-supported mortgage. Parents can agree on an equity-sharing arrangement based on certain terms. This should come in the form of a written contract that determines the responsibilities of both parties and can manifest in many ways. For example, the parents might agree to cover down payment in exchange for a percentage of the home’s equity appreciation. Often times, the child will still cover the monthly payments, and in a zero down situation, the parents might simple require a percentage of the equity appreciation in exchange for making the loan possible with a co-signature. This way, both parties will make money, and the kid can move into a new house with payments they can afford. Sometimes parents co-sign for the loan and other times they only appear in the written contract, depending on the situation. If the child is having difficulty obtaining a loan with a good rate, then it is often necessary for the parent to co-sign. This type of loan requires everyone to be extremely responsible and cannot work without a level of trust. Obviously, if the child cannot make the house payments, then the payments will fall on the parents, or go into foreclosure. There must always be clear communication, and it is not a bad idea to get an attorney involved to make sure the documents are drawn up correctly and are bound legally. When it comes time to sell the house for a profit, everybody wins. This is a great way for young people to build some home equity (as well as credit), and it can be a very lucrative investment for parents. Think about sitting down as a family and discussing a mortgage to bring some financial security to the kids.
About the Author
About the Author: Peter Dellane is the President of Ability Mortgage Group, LLC, A leading Maryland Mortgage company offering low costs zero point mortgages. For more information on Mortgage Maryland please visit www.marylandsmortgage.com.