Parents help kids buy their first home?

The question of how parents can help their kids with their first home purchase comes up frequently.  According to JVM Lending there are seven approaches:

1) Gift of Funds.

2) Loans.

3) Co-Signing.

4) Second Home.

5) Kiddie Condo.

6) Investment Property.

7) Equity Share.

More details

Each of these approaches has potential pitfalls and consequences you need to be aware of before proceeding.  As always, consult your tax and real estate professionals.

Interest Rates and Purchasing Power

"For every 1% rise in interest rates, home prices must fall by 10% in order for you to maintain the same monthly mortgage payment. And at the end of the day, that's what matters, the monthly payment. So take advantage of low rates; they add much more buying power to your purchase than low prices."

Dave Ness of Denver's Thrive Real Estate Group

New Mortgage Qualification Rules

New rules are  being proposed by the Consumer Financial Protection Bureau (CFPB) that are likely to have impacts on the ability of buyers to obtain a mortgage.  The CFPB, created as a result of the financial reforms enacted by congress after the near financial collapse of 2008-2009, is setting out requirements that most banks (although not credit unions or "community banks") will have to follow to determine if prospective borrowers actually have the ability to repay their loan.

The most prominent feature of the new regulations is the requirement that the lender must determine that a borrowers total debt payments including their home mortgage, student loans, credit card payments, and child support not exceed 43% of their income.  There's a good itemization of other features in a Washington Post article.

Some of the new rules are likely to make it more difficult for prospective home buyers to secure a mortgage, especially in high cost markets like the Bay area.

It's too early to know what the actual effect on borrowing will be but one thing is almost certain -- the already cumbersome process some of the big bank lenders use today is likely to get even more convoluted, requiring more documentation, and will take even longer.

Higher Loan Limits Approved

At the end of last week Congress passed and the President signed legislation to restore higher Fannie Mae, Freddie Mac, and FHA conforming loan limits of $729,750.  Those limits had been reduced  expired Oct. 1, when it was reduced to $625,500 on October 1st and, at that time, the restoration of the higher limits which particularly effect our market area seemed very much in doubt.  The higher limits are good through December 2013.

Conforming Loan Limits Coming Down. Downpayments Going Up?

Here's a recent quote from the California Association of Realtors:

FHA and Conforming loan limits will drop dramatically on September 30. Bank of America has already lowered their loan limits for new loans, and others will follow suit. 

And from "HousingWire":

The conforming loan limit determines the maximum mortgage amount the Federal Housing Administration, Fannie Mae and Freddie Mac can buy or guarantee. Without congressional action, the limit will drop to $625,500 from $729,950 for the majority of counties nationwide on Oct. 1.

Almost 60% of single family homes and condos that sold in San Francisco during the first half of this year had a selling price below the current maximum.  Not all of those sales would have been affected by a lower limit but it provides a general idea of the scope of the impact a reduction may have. 

This is an issue for sellers as much as buyers and could have a significant impact on our slowly reviving housing market.  There are some efforts underway to get the congress to keep loans limits where they are but it's not at all clear that will happen.