10 Things California Baby Boomers Need to Know About Helping Their Kid Buy a House

We baby boomers have always been a headstrong bunch of pioneers, and nothing about that is going to change until the last one of us is in our grave.

Here in California, we boomers seem to have this horrible recurring nightmare: the price of buying real estate is so high that our kids either become permanent renters or (gasp!) move to one of those "cheaper" states to raise our grand kids.

Wait. That isn't a dream. That was reality only a few years back! 

And it will be over our collective dead bodies that we let that dream become a reality again.

Not happening.

We would much rather take advantage of what we see as a golden opportunity to help our kids:

1. Some of the very best California real estate is now dirt cheap (no pun intended).
2. We remember rates at 17%!!! We don't EVER remember rates in the 4's.
3. In spite of the economy taking a major dump, we still have enough equity/cash/investments/inheritance/retirement to help our kid buy a house. At least NOW we do.

But who knows how long any of the above will last?

So before things turn around again, (and they WILL turn around), consider helping your kid while you are still alive (as you secretly scheme to keep the newest generation close by...you know, the ones THEY have to take care of).

10 Things You Need to Know to Help Your Kid Buy a House in 2011

1. You can "gift" up to 100% of the down payment and closing costs on an FHA loan (FHA requires only a 3.5% down payment).
2. You can sell your kid your own house, or your rental house, and "gift" the equity in the house as the down payment and closing costs (money from the proceeds of the sale are transferred directly at the time of close, no need to "front" the cash).
3. You can use your equity line to "gift" your child the funds required for the down payment.
4. All of the gift funds need not come from one party. There can be multiple gifts from various interested parties (grandma, uncle, sister, brother, employer, etc)
5. Closing costs can come from seller credits and/or lender credits. The down payment CANNOT be a credit from the lender or the seller.
6. You do not need to be on the loan or on the title to to gift funds to your child.
7. If your child cannot qualify by herself, FHA will allow you to be on the loan as a "non-occupant co-borrower".
8. You will need to prove you have the gift funds in an account by showing a copy of the account statement. (You may not use cash from your safe unless you are willing to deposit it. Gift funds need a paper trail)
9. You will need to sign a document stating it is a true gift and you do not expect to be repaid.  You will not need to transfer these funds until your application is approved and ready for docs.
10. There is a saying in the lending world "You cannot sign good credit to make up for bad credit".  If you are making an application to be on the loan with your kid, your excellent credit score does not matter if your kid's score will not pass. Your mortgage person may be able to fix credit issues. Ask her.

Takeaway: There is a golden opportunity in California this year to help your child realize the dream of owning their own home. If this is one of the things on your "bucket list", start by working out the details with a local mortgage professional that will interact and work well with the communication styles of both generations. 

Best of luck, and please feel free to contact me with questions.

 Written by Janet Guilbault, Private Mortgage Banker with RPM Mortgage based out of the San Francisco Bay Area