Helping son buy a house

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yosh99
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Helping son buy a house

Post by yosh99 » Sat Jun 02, 2018 1:30 pm

I know this has been discussed many times in various threads, but I haven't been able to find an answer to my question.

I have one child, a 30 year old single son, who has a job and pays his own rent which keeps going up. He'd like to buy a house. He could get his own mortgage and do this the traditional way. However, I have enough cash in a taxable account to buy the house outright and I'm thinking there has to be some way I can exploit this situation. I just hate to see all that mortgage interest and fees go to a mortgage company when it may not be necessary.

I could buy the house and rent to him, but I don't want to set up a situation where he feels too beholden to me. I think it's best if the house is his and in his name. All I want to do is keep the mortgage interest payments in the family so to speak.

I could write a loan contract with my son and lend him all the cash and charge a minimal IRS approved interest rate, but I don't know the pitfalls of something like that.

Any advice is appreciated.

Tom

Bogle_Bro
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Re: Helping son buy a house

Post by Bogle_Bro » Sat Jun 02, 2018 1:35 pm

I like your idea.

Rates today on a 15 year are around 4%, rates on a 30 are about 4.5%

Amortize the loan term about 1% below market for a win win.

Solid low risk return for you, great deal for your son.

Goal33
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Re: Helping son buy a house

Post by Goal33 » Sat Jun 02, 2018 1:39 pm

Keep it simple. Gift him some downpayment money and let him borrow it from the bank.
A man with one watch always knows what time it is; a man with two watches is never sure.

dcw213
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Re: Helping son buy a house

Post by dcw213 » Sat Jun 02, 2018 1:47 pm

I think it's a good idea, but are you OK with the interest rate risk? You clearly want to earn a rate of return - if you give him a 30yr fixed at 4% and rates rise materially will you be annoyed that a large chunk of your fixed income may be tied up for decades earning below risk free? Also, are you concerned about what would happen if your son lost his job and could no longer pay You? Just make sure you think through scenarios.

KlangFool
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Re: Helping son buy a house

Post by KlangFool » Sat Jun 02, 2018 1:59 pm

Goal33 wrote:
Sat Jun 02, 2018 1:39 pm
Keep it simple. Gift him some downpayment money and let him borrow it from the bank.
+1.

KlangFool

Fan23
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Re: Helping son buy a house

Post by Fan23 » Sat Jun 02, 2018 2:31 pm

No way! Everyone needs to cut the cord. How can someone be an independent adult when his parents own his house? No matter how great the family relationship is, there are some boundaries and this is a big one.

No offense and I think it's generous of you to consider it, but I don't think it's a good idea. Even if the son gains financially, I think he loses in terms of establishing himself as an independent adult.

I agree with Goal33 that if you want to help financially, kick in some $$ and then step back.

ThePrince
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Re: Helping son buy a house

Post by ThePrince » Sat Jun 02, 2018 5:53 pm

Fan23 wrote:
Sat Jun 02, 2018 2:31 pm
No way! Everyone needs to cut the cord. How can someone be an independent adult when his parents own his house? No matter how great the family relationship is, there are some boundaries and this is a big one.

No offense and I think it's generous of you to consider it, but I don't think it's a good idea. Even if the son gains financially, I think he loses in terms of establishing himself as an independent adult.

I agree with Goal33 that if you want to help financially, kick in some $$ and then step back.
+1

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Alexa9
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Re: Helping son buy a house

Post by Alexa9 » Sat Jun 02, 2018 5:55 pm

Loaning family members money can be a disaster. Gifting him some money for a down payment would create good karma/vibes all around.

michaeljc70
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Re: Helping son buy a house

Post by michaeljc70 » Sat Jun 02, 2018 6:29 pm

I could go with either helping with the down payment or carrying the mortgage. I don't know your son though. My Great Grandmother carried my parents mortgage. It was beneficial to both. But in 30 years (well, probably less because they prepaid sometimes), my parents never missed a payment. If your son loses his job, will the mortgage to Dad be the first things he cuts out? Will you care? Is locking up your money for 30 years at 4% beneficial to you? You will have to pay taxes on the interest (as you would whatever you invest taxable $$$ in). What if in 15 years interest rates are 12%?

youngpleb
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Re: Helping son buy a house

Post by youngpleb » Sat Jun 02, 2018 6:33 pm

Fan23 wrote:
Sat Jun 02, 2018 2:31 pm
No way! Everyone needs to cut the cord. How can someone be an independent adult when his parents own his house? No matter how great the family relationship is, there are some boundaries and this is a big one.

No offense and I think it's generous of you to consider it, but I don't think it's a good idea. Even if the son gains financially, I think he loses in terms of establishing himself as an independent adult.

I agree with Goal33 that if you want to help financially, kick in some $$ and then step back.
I agree ^^
yosh99 wrote:
Sat Jun 02, 2018 1:30 pm
I could buy the house and rent to him, but I don't want to set up a situation where he feels too beholden to me.
No offense, but you're literally going to buy a house for him. It's hard to imagine a scenario where one would feel more beholden to another than this (maybe giving someone a kidney? idk). I'd feel terrible and be angry at myself if I let my parents buy a house for me...it just feels like one of those rites of passage that everyone has to do by themselves at some point. Maybe it's just me though.
27. Always learning.

123
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Re: Helping son buy a house

Post by 123 » Sat Jun 02, 2018 7:30 pm

Gift him the down payment (or more) but don't get involved with a loan. Too many bad things can happen. What if he marries, divorces, and the spouse gets the house (and the mortgage)? Spouse then remarries replacing your son. Or if your son remarries and wants to buy a house but you can't help because a lot of your funds are tied up in the house his ex lives in with her new boyfriend or spouse? Lots of things can happen over 30 years. Need I go on?
The closest helping hand is at the end of your own arm.

JoeRetire
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Re: Helping son buy a house

Post by JoeRetire » Sat Jun 02, 2018 7:52 pm

yosh99 wrote:
Sat Jun 02, 2018 1:30 pm
I could write a loan contract with my son and lend him all the cash and charge a minimal IRS approved interest rate, but I don't know the pitfalls of something like that.
Would you be willing to foreclose on the house is he doesn't pay you back? Would you be willing to forgive the loan if he doesn't pay you back?

If the answer to both is NO, then don't do the loan.

The best of sons and daughters can see their life go awry. Drugs, lost jobs, divorces, spouses with different outlooks can cause things to be set in motion whereby paying back the parents no longer becomes a priority. Stuff happens.

Banks understand this, and are willing to take action when needed. Are you?

PFInterest
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Re: Helping son buy a house

Post by PFInterest » Sat Jun 02, 2018 7:54 pm

yosh99 wrote:
Sat Jun 02, 2018 1:30 pm
I know this has been discussed many times in various threads, but I haven't been able to find an answer to my question.

I have one child, a 30 year old single son, who has a job and pays his own rent which keeps going up. He'd like to buy a house. He could get his own mortgage and do this the traditional way. However, I have enough cash in a taxable account to buy the house outright and I'm thinking there has to be some way I can exploit this situation. I just hate to see all that mortgage interest and fees go to a mortgage company when it may not be necessary.

I could buy the house and rent to him, but I don't want to set up a situation where he feels too beholden to me. I think it's best if the house is his and in his name. All I want to do is keep the mortgage interest payments in the family so to speak.

I could write a loan contract with my son and lend him all the cash and charge a minimal IRS approved interest rate, but I don't know the pitfalls of something like that.

Any advice is appreciated.

Tom
Give him 15K per year. If you are married have your wife also give him 15K per year. Repeat yearly until either he or you decline or house is paid off.
Let him be an adult otherwise.

Gnirk
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Re: Helping son buy a house

Post by Gnirk » Sat Jun 02, 2018 8:20 pm

I think it's great that you want to help your son buy a house. However, I agree with others who have advised gifting him the downpayment, and letting him take out a loan and pay a third party, not you. Personally, i've loaned money ($1,000-$2,000) to my children over the years, we always sign a note, and they have always paid "Bank of Mom" in a timely manner.

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TxAg
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Re: Helping son buy a house

Post by TxAg » Sat Jun 02, 2018 8:31 pm

Good idea but have yall thought about a non traditional home? Maybe a tiny home or a container home? Maybe a cabin or an A frame? Something cheaper, smaller, and easier to maintain than a normal house.

Dandy
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Re: Helping son buy a house

Post by Dandy » Sun Jun 03, 2018 6:06 am

I like the idea of gifting the downpayment but I think the idea of him owning vs renting could be looked at. For a single person who might not like rising rents from an affordability standpoint home ownership is often way more expensive. Insurance, taxes, landscaping, repairs, more expensive heating/air conditioning, etc. Also, usually more work unless he hires people to mow the lawn, clean the gutters, shovel driveways, etc.

From what I've read people seem to think home ownership is a great investment but usually keeps up with inflation with notable exceptions both ways. A condo vs house might be an option. Of course if he plans to marry and have children a house can be a wonderful living experience -- but not cheap.

NJ-Irish
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Re: Helping son buy a house

Post by NJ-Irish » Sun Jun 03, 2018 6:24 am

Don’t add any strings. Any money which you add to the deal, make sure it’s a gift.

gmaynardkrebs
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Re: Helping son buy a house

Post by gmaynardkrebs » Sun Jun 03, 2018 8:50 am

If he's going to inherit the money anyway, why not?

RickBoglehead
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Re: Helping son buy a house

Post by RickBoglehead » Sun Jun 03, 2018 9:44 am

While it may make financial sense to be the "bank", it doesn't make for a healthy family relationship. Gift some money for a down payment and be done.

purpleKatz
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Re: Helping son buy a house

Post by purpleKatz » Sun Jun 03, 2018 12:05 pm

When I looked into this (in reverse, as a loan to a parent), it didn't make sense financially for long-term loans.
Right now he has the rare opportunity to take advantage of long-term mortgage rates that are still at historical lows - and you don't have to lock this money in a low-return inflexible investment. Also the combined family portfolio decreases because although he may have more money in-hand, you would need to pay taxes on the interest. The IRS takes a cut.

Long term, it makes more financial sense - and with less taxes paid to the government- if you were to invest this as his future retirement instead and have him inherit either a taxable account with zero capital gains or if you're in a low tax bracket, you can start converting to a Roth. During a 30-year term, an untouched high-stock allocation has a very good chance to outpace a 4.5% return.

However, if you essentially want an equivalent of a 30-year CD or if you want to do a trial-run for his downpayment, look into www.nationalfamilymortgage.com. You can always offer to have him refinance through you.
Last edited by purpleKatz on Sun Jun 03, 2018 12:27 pm, edited 3 times in total.

bubbadog
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Re: Helping son buy a house

Post by bubbadog » Sun Jun 03, 2018 12:14 pm

ThePrince wrote:
Sat Jun 02, 2018 5:53 pm
Fan23 wrote:
Sat Jun 02, 2018 2:31 pm
No way! Everyone needs to cut the cord. How can someone be an independent adult when his parents own his house? No matter how great the family relationship is, there are some boundaries and this is a big one.

No offense and I think it's generous of you to consider it, but I don't think it's a good idea. Even if the son gains financially, I think he loses in terms of establishing himself as an independent adult.

I agree with Goal33 that if you want to help financially, kick in some $$ and then step back.
+1
+2

At 30 years old, it is time for full fledged adulting!

:moneybag

Slapshot
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Re: Helping son buy a house

Post by Slapshot » Sun Jun 03, 2018 1:18 pm

I have 2 sons. I gave son #1 the down payment on his first house, and since then he has parlayed that original investment into over $2.5 million of rental real estate all cash flowing positively. I've lent him other money, and his checks have always direct deposited into my checking account on a monthly basis without a late or missed payment.

I paid for a house for son #2 and we wrote up an official mortgage agreement with an amortization schedule which I had legally recorded. I wanted to make sure that he couldn't go out and get a HELOC or loan. Things worked out fine for the first 6 months. Then he got laid off from his job, had all sorts of health issues, and is still trying to get back on his feet. So I haven't seen any income in ages. Bottom line is it was the biggest mistake I've ever made in my life.

The point is that it all depends on the individual kid. It can work out great, but it can also turn into a disaster.
This time, like all times, is the best of times if we but know what to do with it.

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praxis
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Re: Helping son buy a house

Post by praxis » Sun Jun 03, 2018 1:33 pm

Goal33 wrote:
Sat Jun 02, 2018 1:39 pm
Keep it simple. Gift him some downpayment money and let him borrow it from the bank.
I don't know your son. We gifted our son (same age) the down payment for his first house. Within a year he got married, sold the house and moved. It was not a wise financial decision in my opinion but I kept quiet about it. He had some equity in it which he took with him and now, 2 years later, he is upside down in his second house and carrying two large car notes with his new wife and 2 kids under 2 years old. Whew.

If I had bought him the house, my regrets would have been much greater. We still want to help him and include a large check in his Christmas and birthday cards, but our relationship with him and our DIL and our grandkids is important and financial arrangements between family members are touchy. Walk softly. There are many ways to help him.

CnC
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Re: Helping son buy a house

Post by CnC » Sun Jun 03, 2018 3:33 pm

Slapshot wrote:
Sun Jun 03, 2018 1:18 pm
I have 2 sons. I gave son #1 the down payment on his first house, and since then he has parlayed that original investment into over $2.5 million of rental real estate all cash flowing positively. I've lent him other money, and his checks have always direct deposited into my checking account on a monthly basis without a late or missed payment.

I paid for a house for son #2 and we wrote up an official mortgage agreement with an amortization schedule which I had legally recorded. I wanted to make sure that he couldn't go out and get a HELOC or loan. Things worked out fine for the first 6 months. Then he got laid off from his job, had all sorts of health issues, and is still trying to get back on his feet. So I haven't seen any income in ages. Bottom line is it was the biggest mistake I've ever made in my life.

The point is that it all depends on the individual kid. It can work out great, but it can also turn into a disaster.

Well if it wasn't for your "biggest mistake I've ever made" you son probably would be on the street.

It depends on if you would rather have no income.in ages or him be on the street.

JoinToday
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Re: Helping son buy a house

Post by JoinToday » Sun Jun 03, 2018 3:53 pm

Shouldn't (a) the loan amount compared to the net worth of the loaner be a significant factor in the decision? and (b) If the parent/loaner has excess assets that will likely be passed to kid as inheritance, that should also be a factor?

If the kid/relative wants to borrow 20% of the parent's financial assets and the parent is expecting to need it for retirement, I would be reluctant to loan.

If the loan amount is 2% of the parents financial assets and the parent's assets are 50 or 100 times yearly spending (2% or 1% withdrawal rate in retirement), I would be more inclined to loan, or more likely give a gift. From a risk and impact standpoint, if the loan is not repaid, the parent would be disappointed but not materially impacted in the second case.
I wish I had learned about index funds 25 years ago

Goal33
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Re: Helping son buy a house

Post by Goal33 » Sun Jun 03, 2018 8:29 pm

praxis wrote:
Sun Jun 03, 2018 1:33 pm
Goal33 wrote:
Sat Jun 02, 2018 1:39 pm
Keep it simple. Gift him some downpayment money and let him borrow it from the bank.
I don't know your son. We gifted our son (same age) the down payment for his first house. Within a year he got married, sold the house and moved. It was not a wise financial decision in my opinion but I kept quiet about it. He had some equity in it which he took with him and now, 2 years later, he is upside down in his second house and carrying two large car notes with his new wife and 2 kids under 2 years old. Whew.

If I had bought him the house, my regrets would have been much greater. We still want to help him and include a large check in his Christmas and birthday cards, but our relationship with him and our DIL and our grandkids is important and financial arrangements between family members are touchy. Walk softly. There are many ways to help him.

I can’t tell if you are agreeing with me or not... seems like your decision to gift him money rather than finance his mortgage was a good decision. You gave a generous gift and I’m sure your son appreciates it still even though he sold that house.
A man with one watch always knows what time it is; a man with two watches is never sure.

Goal33
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Re: Helping son buy a house

Post by Goal33 » Sun Jun 03, 2018 8:29 pm

praxis wrote:
Sun Jun 03, 2018 1:33 pm
Goal33 wrote:
Sat Jun 02, 2018 1:39 pm
Keep it simple. Gift him some downpayment money and let him borrow it from the bank.
I don't know your son. We gifted our son (same age) the down payment for his first house. Within a year he got married, sold the house and moved. It was not a wise financial decision in my opinion but I kept quiet about it. He had some equity in it which he took with him and now, 2 years later, he is upside down in his second house and carrying two large car notes with his new wife and 2 kids under 2 years old. Whew.

If I had bought him the house, my regrets would have been much greater. We still want to help him and include a large check in his Christmas and birthday cards, but our relationship with him and our DIL and our grandkids is important and financial arrangements between family members are touchy. Walk softly. There are many ways to help him.

I can’t tell if you are agreeing with me or not... seems like your decision to gift him money rather than finance his mortgage was a good decision. You gave a generous gift and I’m sure your son appreciates it still even though he sold that house.
A man with one watch always knows what time it is; a man with two watches is never sure.

rbaldini
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Re: Helping son buy a house

Post by rbaldini » Sun Jun 03, 2018 8:36 pm

Agreed with many others. Do not get involved in a complicated financial relationship. Gift some down payment money and let him get a loan like everyone else.

Or do nothing and let him find his own way.

sjl333
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Re: Helping son buy a house

Post by sjl333 » Sun Jun 03, 2018 9:52 pm

At 29 y/o...as much as I get tempted to ask my father to loan me some money for a house downpayment (he has two houses currently...).... I've realized that its much better to do things on your own and not use others, even family members, as crutches. Thus, the individual will learn things on his/her own two feet and realize how hard it is to make money and sustain a good lifestyle, such as buying a nice house, being married, raising 2-3 kids, nice sports car, etc.

However, to each their own if you decide otherwise.

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Sandtrap
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Re: Helping son buy a house

Post by Sandtrap » Sun Jun 03, 2018 11:34 pm

1. Gift son the downpayment. Perhaps a substantial one, even 50% or more to your liking. Leave the mortgage to son.
2. Gift the entire purchase to son.
3. Do nothing. Sometimes "helping" is teaching to build a boat instead of buying one as a gift.
3. Think about what would happen if you have a loan and you pass away. Then what? Avoid financial ties between family.

j :D

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praxis
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Re: Helping son buy a house

Post by praxis » Mon Jun 04, 2018 8:39 am

Goal33 wrote:
Sun Jun 03, 2018 8:29 pm
praxis wrote:
Sun Jun 03, 2018 1:33 pm
Goal33 wrote:
Sat Jun 02, 2018 1:39 pm
Keep it simple. Gift him some downpayment money and let him borrow it from the bank.
I don't know your son. We gifted our son (same age) the down payment for his first house. Within a year he got married, sold the house and moved. It was not a wise financial decision in my opinion but I kept quiet about it. He had some equity in it which he took with him and now, 2 years later, he is upside down in his second house and carrying two large car notes with his new wife and 2 kids under 2 years old. Whew.

If I had bought him the house, my regrets would have been much greater. We still want to help him and include a large check in his Christmas and birthday cards, but our relationship with him and our DIL and our grandkids is important and financial arrangements between family members are touchy. Walk softly. There are many ways to help him.

I can’t tell if you are agreeing with me or not... seems like your decision to gift him money rather than finance his mortgage was a good decision. You gave a generous gift and I’m sure your son appreciates it still even though he sold that house.
Sorry if I was unclear. I copied your comment because I agree with that advice. I added my comments from my experience for further detail. In hindsight, I'm not sorry we helped our son. I had assumed he would raise his family in the house we helped him afford and was surprised when he cashed out and left town. I see now that sentiment was reflected in my post. It is true that if we had paid for the house outright for him and he had cashed out and left town. I would have had a harder time shrugging that off. If any of that helps the OP, good.

Glockenspiel
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Re: Helping son buy a house

Post by Glockenspiel » Mon Jun 04, 2018 8:43 am

I really feel like you need to step back and let him borrow from the bank. If anything, gift him the down payment or a portion of his down payment.

CnC
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Re: Helping son buy a house

Post by CnC » Mon Jun 04, 2018 9:24 am

Just an fyi

My in-laws bought a house and sold it to their son contract for deed.

This has worked out very well for all parties. Since it has stayed in the parents names his ex wife couldn't take it away when she left him.

TN_Boy
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Re: Helping son buy a house

Post by TN_Boy » Mon Jun 04, 2018 11:52 am

Glockenspiel wrote:
Mon Jun 04, 2018 8:43 am
I really feel like you need to step back and let him borrow from the bank. If anything, gift him the down payment or a portion of his down payment.
Getting a reasonable (for his income) mortgage and keeping up to date on payments would surely be good for both his credit history and sense of financial independence. If you want to help, I think the suggestion of other posters to gift money makes the most sense.

You didn't ask, but when I bought my first home, my parents would certainly have had the cash to help me quite a bit with the downpayment, but the thought of asking for that kind of help in my early 30s with a decent job never crossed my mind. I thought I was supposed to be grown up by then.

On the other hand, I always felt like if I fell into financial difficulties not of my own making, my parents would help out, though that never happened.

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