Oct. 16 (Source: By Eve Mitchell, Contra Costa Times, Walnut Creek, Calif.) - More parents are helping their adult children buy their first home by taking care of the down payment at a time when home prices are low and financing is tough.Christian Fernandez has a place to call his own, thanks to his parents providing most of the 20 percent down payment and closing costs on the $345,000 two-bedroom condominium in Daly City he moved into four months ago. Without the financial help from his parents, Fernandez could not have bought his condo.

“Getting hold of that down payment just doesn’t come easy. … I had set aside some money myself but they supplemented it greatly,” said the 27-year-old, who works in engineering after graduating last year from San Francisco State with a degree in mechanical engineering.

“We are Filipinos and have taken it upon ourselves the responsibility of putting our kids through college (and helping them buy a home),” said Fernandez’s mother, Cynthia Andaya, 57, of Hercules. “Primarily, this is our inheritance to them.”

Fernandez is not alone. Hard numbers are difficult to come by, but from April to June 2011, 21.5 percent of first-time buyers received a down payment as a gift or borrowed it from a relative, up from 14.3 percent in 2006 in the same time frame, according to the California Association of Realtors. Realtors say most of the help is probably in the form of a gift.

Realtor Orhan Tolu has handled about six transactions, including the one for Fernandez, in the past

five months in which parents covered the down payment.

“The kids have the job and can afford the mortgage payment” but need help with the down payment, said Tolu, a broker with Century 21 Realty Alliance, which has offices in San Mateo and San Francisco. “It’s like an investment in the kid’s future because prices in the Bay Area are eventually going to go up again.”

Parents helping out their children with the down payment is not new, but tougher lending standards and low home prices have resulted in it happening more in the past few years, real estate industry experts say.

“Five years ago, prices were higher but financing was easier. A lot of people could qualify for 100 percent financing,” Tolu said.

“I’d say there is more motivation now. Parents who have been through previous real estate cycles see this as an opportunity. The parents are encouraging the kids to get into the market,” said Kevin Kieffer, a Realtor with the Danville office of Keller Williams Realty.

“Prices are at a range now that makes homeownership much more affordable,” Jon Wood, a Realtor with the Walnut Creek office of J. Rockcliff Realtors. “You can buy a single-family house in Concord for under $200,000.”

Some parents are helping out with the down payment because they can’t find an appropriate investment in today’s volatile economy. “They’re willing to help out their kids. They are looking for a safer investment,” he said.

But before providing the down payment, parents need to take into account that they could get hit with gift taxes if it goes over a certain amount.

They also need to be sure that giving the money away won’t hurt their own retirement plans.

“One of the things you should think about is whether this gift will be subject to gift tax calculations,” said Megan Rouse, a financial planner in Dublin. “It’s great to be generous, but it’s also important to look at your overall financial situation and (know) that it’s extra cash you can afford to give away.”

For tax year 2011, a taxpayer can give up to $13,000 per-year per-person (a married couple can give up to $26,000 a year) and not worry about gift taxes. Anything above the annual cap is subtracted from the lifetime $5 million limit for making tax-free gifts.

If taxpayers think they are going to go over the annual cap, they should first consult a financial planner or certified public accountant to discuss the tax implications, said Rouse.

Parents also need to make it clear that the money is indeed a gift and not a loan when they are helping out a child with a down payment. That can be done by writing a letter to the lender stating that the money is a gift, said Kieffer, the Danville Realtor. Otherwise, the lender will look at the down payment as a loan that has to repaid, which could make it harder for the child to get financing.

Even though home prices are at a low point, “the down payment can be pretty daunting in the Bay Area,” especially if the buyer is seeking a conventional loan that typically requires at least a 20 percent down payment, Kieffer said.

But not all down payment gifts from parents come with such a big price tag. Many parents are providing the 3.5 percent down payment required for Federal Housing Administration loans, said Kieffer.

An FHA down payment lessens the likelihood of running into gift-tax issues, he said.

No matter which route a parent provides a down payment to a child, it’s a “way to help kick start them into homeownership,” Kieffer said.

Contact Eve Mitchell at 925-952-2690.

___

(c)2011 the Contra Costa Times (Walnut Creek, Calif.)

Visit the Contra Costa Times (Walnut Creek, Calif.) at www.contracostatimes.com

Distributed by MCT Information Services

A service of YellowBrix, Inc. Publication date: 2011-10-16

Source: By Eve Mitchell, Contra Costa Times, Walnut Creek, Calif.

Article source: http://www.loansafe.org/with-a-little-help-from-the-parents