My paternal grandparents were refugees. They fled Poland right before World War II and journeyed through Russia, Poland and Israel before finally settling in the United States. Perhaps based on their experiences, they felt strongly about the importance of owning land. They bought a home in New Jersey and then started pursuing profit-creating real estate investments like garden apartment buildings. Some of the profits from these real estate investments helped their children and grandchildren in a variety of ways, including passing on the value and ensuring the next generation’s ability to own land and homes themselves. They might not have used this phrase at the time, but they were creating intergenerational wealth.
Perhaps you find yourself in a similar situation and would like to know how someone can help family members buy a home. There are several ways to accomplish this goal. The most commonly known option is the gifting of assets. In this scenario one family member gives money to another family member as a gift for the recipient to use towards a down-payment and closing costs. A buyer may be able to get a gift to cover all required funds or may use some gift funds and some personal funds. Gifting is a great way to help a homebuyer who has enough income to comfortably cover the monthly mortgage payment, but doesn’t have the savings available to cover all the required cash-to-close requirements.
For mortgage documentation purposes the gift giver may be asked to provide a few pieces of information to verify that the assets are a gift and that there has been a transfer of funds. This documentation might include a letter stating that the funds are a gift and do not need to be repaid, a bank statement showing the giver has funds available to gift, and evidence of the transfer of funds which may be a wire transfer, cashier’s check or bank statements showing the new balances.
A second option available to family members who want to help a homebuyer is to be part of the mortgage as a non-occupying co-borrower. A non-occupying co-borrower would not be moving into the home as a primary residence, but would be equally responsible for the monthly mortgage payment. This is an ideal scenario for someone who wants to buy, but doesn’t have enough qualifying income to cover the mortgage’s debt to income calculation (debt to income is the calculation that takes all the monthly payments from the credit report plus the new mortgage payment and divides it by the gross income.) This non-occupying co-borrower option can also be used effectively for buying a home for students near their college or university so that the housing payments made during the years of school become an investment in a real estate asset as opposed to paying rent. The student is the primary borrower and, therefore, it is a primary residence, but the guardian’s income is the support for being able to cover the monthly mortgage payment.
On a mortgage loan with a borrower and a non-occupying co-borrower, both borrowers will complete a loan application, have credit reviewed, and provide documentation to support income, assets and identity. The borrower with the lower credit scores will be used as the qualifying score for the mortgage. Both borrowers’ income and debts are included in the calculation of the total loan’s debt to income value.
Family members may also choose a third scenario where they find a home that allows them to combine households or share a multi-family home so that the purchase is a primary residence for both parties. All borrowers’ income and debts will be included in the loan file’s debt to income calculations. Funds for the down payment and closing costs can be from either one of the borrowers, or both can contribute, and everyone on the loan would complete a loan application and provide the required documentation.
So, if you have a child, a sibling or a parent who could use some help to achieve the dream of homeownership, consider which of these options is best for your family circumstances. Knowing the possibilities may give you just the information you need to make homeownership a reality for a loved one.
Tami Arnowitz is a loan officer at Quintessential Mortgage Group ( www.qmgllc.com ). QMG can help borrowers in NY, NJ, CT, FL, PA & MI. Tami’s goal is to help clients understand the home financing process and find the right mortgage product for their needs. She also serves as a resource to real estate partners. Tami lives in Westchester with her husband, Rabbi Jeffrey Arnowitz, and their four sons. She can be reached at [email protected].
