How can Parents Help you Cross the Finish Line to Home Ownership?
In San Francisco and the Bay Area, housing affordability is low. Even though employees in certain job sectors in the Bay Area and San Francisco are among the top paid in the nation, they may not qualify for a home loan on their own. Some of the factors that hinder loan qualification are not enough liquid cash for the down payment and closing costs or the home price is on the high end or perhaps student loans put the debt to income ratio to high to qualify.
Ways to Overcome Barriers to Home Ownership
Buyers intent on entering the San Francisco Real Estate Market get super creative and leverage a multitude of angles in an effort to enter into the market. An angle that I see used quite frequently due to the high cost of housing is adult children partnering with their parents to purchase a home/condo. Parents and/or family help in a variety of ways from gift funds for a down payment, partnering on a loan, structuring a private loan direct to their adult kid and much more.
My go to finance partner, Valerie Avril of Wells Fargo shared the following top-line information on the main scenarios on how parents can help. Each case is unique, but the info below provides a solid overview on how parents can help adult children purchase a home/condo.
There are three different instances in which a non-occupant (parent) borrower can contribute to the credit application of the occupying (adult child) applicant. The first two are the most relevant to how I see clients work with their parents and family to get into this market.
1. You qualify for the loan on your own, the parent helps by way of down payment
Adult child qualifies for the loan on their own but does not have the down payment, reserves and/or needs parent(s). Occupant borrower meets standard debt ratio requirements on her/his own. The subject property is considered a primary residence. In this case, the borrowers do not need to be related and non-occupant borrower can be involved with the credit application by providing down payment assistance.
2. You don’t qualify for the loan on your own, the parent is the applicant and main borrower
Non-occupant borrower meets debt ratio requirements on her/his own. The subject property is considered a 2nd home. Occupying relative is on the credit application but income is not needed to qualify. Down payment can come from either occupying or non-occupying applicant.
3. Neither you or your parents qualify for the loan on your own, qualification takes both parties income
Both borrowers’ income is needed to qualify. The subject property is considered investment property and the borrowers do not have to be related. Down payment can come from either occupying or non-occupying party.
Now of course, the amount of down payment is going to vary depending on which scenario applies.
You Need to Be Prepared for This Market!
The better prepared a buyer is to tackle the intense and at times insane San Francisco and Bay area real estate market the more seamless and effective their experience will be!
I Help with That!
Let me know what your questions or concerns are. I’m here to guide you with a proven framework for helping buyers secure a home in the competitive San Francisco and Bay Area Real Estate Market.
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