Parent and child purchase home
Posted 11 February 2013 - 02:26 PM
Posted 12 February 2013 - 12:10 PM
My child, who recently graduated college, and is earning about $90k /yr, has a very short and clean credit history, but no $ for down payment. I, the parent, on the other hand have ample $ for down payment, but no income and poor credit. Seems between us, we should be able to purchase a home with my large down payment and child's ample salary. We are open to different statuses as to who whose name(s) is/are on the deed. How will banks look at this? What is the best way to do this as regards whose name is on the deed? What are the pros and cons for each of the 3 combinations of ownership status?
With his income he's not going to need a "large" down payment. FHA loans require a minimum down payment of 3.5% although lenders do have the option of asking for more and the borrower also has the option of paying more.
Scenario 1 - Your child buys and borrows in his own name (sole ownership). The lender will want evidence that he has the down payment and closing cost money in his bank account. There is no problem with that money being a gift from a parent but they will want an affidavit that it is a gift and not a loan. That's probably the cleanest way to do it.
Scenario 2 - You and your child buy and borrow in both your names (joint ownership) - With a large down payment, like 20% or more, your poor credit shouldn't be an issue. However, if you have bad debts and get sued for them, the creditors could then put a lien on the house and that wouldn't do your child any good.
Scenario 3 - You buy and borrow in your own name (sole ownership). I don't see that happening since you have poor credit and no income. If you had enough income to be able to cover the house payments and put down 20% or better, your poor credit might not be an issue.
Another thing to think about is will you and your child live together? Does your child support you? Are you looking to live there in exchange for putting up the down payment? If you answer yes to all those questions the best thing to do, in my humble opinion, is to give your child the down payment in exchange for a "life estate" (google it) that would be included in his deed.
Warning: Legal issues are complicated. Explanations and comments here are simplified and might not fully explain the ramifications of your particular issue. I am not a lawyer. I do not give legal advice. I make comments based on my knowledge and experience. I guarantee nothing. If you act on my comments without the advice of an attorney, you do so at your own risk.
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