Helping a Child with Downpayment or After Closing?

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OnTrack2020
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Helping a Child with Downpayment or After Closing?

Post by OnTrack2020 »

One of our children is in contract on a house which, to be realistic, is going to need a fair amount of work--some critical (but not too expensive I don't think; ie, battery-operated sump pump, bathroom floor slanted, electrical panel needs to be relocated, etc.) and some cosmetic work at some point (deck staining, carpeting, kitchen flooring, updated appliances, bathroom needs a basic re-do, etc.). The house is o-l-d. He is using most, but not all, of his savings toward down payment, but it is not a 20% down payment, more like 10%. And he is comfortable with that.

Suggestions please regarding helping with some more money towards down payment, or to help more with the work that is going to need to be done. Husband already is planning on buying about $1k worth of tools that he knows he will need.

We have 3 other children--late teens/early 20s, each with some form of disability, but each will be able to live on their own, but I'm not sure home ownership is in their future. I'm somewhat struggling with the financial piece of all of this.
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JoeRetire
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Re: Helping a Child with Downpayment or After Closing?

Post by JoeRetire »

OnTrack2020 wrote: Fri Aug 05, 2022 8:26 am Suggestions please regarding helping with some more money towards down payment, or to help more with the work that is going to need to be done. Husband already is planning on buying about $1k worth of tools that he knows he will need.

We have 3 other children--late teens/early 20s, each with some form of disability, but each will be able to live on their own, but I'm not sure home ownership is in their future. I'm somewhat struggling with the financial piece of all of this.
It's not clear what you are struggling with.
- are you worried about the other 3 children?
- are you worried how much you can afford to give them?
- are you worried about the timing of a gift?
- are you hoping to help them avoid a PMI?

You need to do whatever you feel comfortable doing, to the extent that you feel comfortable, keeping in mind your own future financial needs and any desire you might have to help your other children.

It seems to me that helping with the down payment will save them some money for future repairs, unless you think they will squander any extra cash they might have.
Last edited by JoeRetire on Fri Aug 05, 2022 8:41 am, edited 2 times in total.
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exodusNH
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Re: Helping a Child with Downpayment or After Closing?

Post by exodusNH »

OnTrack2020 wrote: Fri Aug 05, 2022 8:26 am One of our children is in contract on a house which, to be realistic, is going to need a fair amount of work--some critical (but not too expensive I don't think; ie, battery-operated sump pump, bathroom floor slanted, electrical panel needs to be relocated, etc.) and some cosmetic work at some point (deck staining, carpeting, kitchen flooring, updated appliances, bathroom needs a basic re-do, etc.). The house is o-l-d. He is using most, but not all, of his savings toward down payment, but it is not a 20% down payment, more like 10%. And he is comfortable with that.

Suggestions please regarding helping with some more money towards down payment, or to help more with the work that is going to need to be done. Husband already is planning on buying about $1k worth of tools that he knows he will need.

We have 3 other children--late teens/early 20s, each with some form of disability, but each will be able to live on their own, but I'm not sure home ownership is in their future. I'm somewhat struggling with the financial piece of all of this.
How responsible is this person with money? If you gave them a lump sum, would it be frittered away or used to purchase fancier-than-needed repairs?

It might be easier/safer to pay for repairs as they're done rather than a lump sum. This way they don't suddenly feel flush with cash.

You really want them to rebuild their cash savings. Burning all the savings on the down payment is dangerous because of unexpected expenses.
LittleMaggieMae
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Re: Helping a Child with Downpayment or After Closing?

Post by LittleMaggieMae »

One of our children is in contract on a house which, to be realistic, is going to need a fair amount of work...
Can you son rely on family and friends for help with the DIY projects on the list for what the house needs?

How much $$ are you willing to gift him??

Are any of the things that need to be fixed code violations and required as part of the sale to be fixed by the new owner (I would assume this would a "deal" between the seller, the buyer, and the code enforcing arm of the local government - I have purchased houses with agreements like this)? If he is responsible to bring some of the things up to code as part of the sale agreement - your help with $$ after the sale may be more useful for this if he runs into anything that goes over his budget or his diy abilities.

Also appliances (fridge, stove, dishwasher, washer/dryer, and I'll add in water heater, HVAC) can be a big expense especially since your son might want to consider energy star appliances which sometimes are a bit more expensive up front but which may cost him much less over the lifetime of the appliance. (ie smaller monthly bills into the future).
He is using most, but not all, of his savings toward down payment, but it is not a 20% down payment, more like 10%. And he is comfortable with that.
I am not against putting down less than 20% on a house. Sometimes paying PMI is not a bad thing.

Does HE know what he will have to do to get PMI removed? Really. He needs to KNOW. If he has the kind of loan that has PMI for the length of the mortgage (a, is it FDA? loan?) he may have to refi his loan (in a year or two) to remove PMI (which may mean higher interest rates than we currently have). My neice had one of these - and she was VERY annoyed because she thought PMI would go away automatically or by making a phone call to the lender. She discovered she had to refi to a new lender to get rid of PMI. I think the "painful part" was that she procrastinated a bit and then the time it took to refi the loan - she paid PMI for much longer than she would have if she had stayed on top of it - the only plus was that she was doing the refi in a time of low and dropping interest rates.

Make sure you son understands and knows what must be done to remove PMI (what costs will be involved). This is an expense you might be able to help him with - if in 12 or 24 months he can work to get PMI removed and he has some costs invovled (closing fees on a new loan, or an appraisal fee).

The real question here is how much is his monthly payment (PITI + PMI) going to be? Can he easily afford it OR is it a stretch? How much MORE per month will his mortgage payment be (the PI + PMI) without 20% down than with 20% down (the new PI)?? Is it substantial? Taxes and insurance are always variable.

Also, will doing some of the repairs (and whatever decorative things he will do - repainting, some landscaping/clean up ) add to the value of the property (to help get to the point of getting rid of PMI).

Personally, I'd help your son estimate the costs of the "repairs/fix ups" he needs to do, I'd try to get him to understand the consequences of the type of mortgage he takes (easy/pay a little to get rid of PMI or must he do a refi to get rid of it), and that he may be paying a higher property tax (if the old owner of the house had special deductions or a "old person" freeze on property taxes). In other words has he thought how the mortgage and house will effect his finances 6 months and a year down the road - rather than just how that first payment would effect his "today" finances??

And then I'd let him be. I would come up with some $$ amount that you are willing to help him in total - and then offer that money after the sale when/if he runs into trouble with his estimates/budgeting for the fix ups. Maybe "gift him" appliances or something...

Another way to think about this is If your son is young (20's or very early 30's)... he's got a heck of a lot more flexibility for making financial mistakes or missteps. if he is in his 40's it gets a lot more risky...
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BrooklynInvest
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Re: Helping a Child with Downpayment or After Closing?

Post by BrooklynInvest »

PMI can make the cost of the less than 20% down payment a pain.

Me, I'd help with the downpayment IF the house is livable in the meantime. I live in an old house. When I was young and house poor I took on renovations as I got the money, but there were no serious problems with the house. Took a while to get it ship shape (and needs a facelift again now!) but that's life.

Then you've got a figure you could make consistent across the other kids over time?

Good luck OP!
Oddball
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Re: Helping a Child with Downpayment or After Closing?

Post by Oddball »

Good responses so far.

Just one note is if you give him money for the down-payment, that will need to be disclosed on the mortgage closing documents. The underwriter will need to know how much of the down-payment was a gift from you, at least that is the way it is in my state, and I assume nation wide.
LittleMaggieMae
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Re: Helping a Child with Downpayment or After Closing?

Post by LittleMaggieMae »

Husband already is planning on buying about $1k worth of tools that he knows he will need.

I'm hoping this is like for appropriate kinds of ladders for the house or a lawn mower and other yard tools that he will use over and over for years... and not some tool he will be using once (like a miter saw or a special tile cutter saw) that he could rent for the one weekend he will actually need the special tool.

Does you son have access to other people who do DIYs? Where he can "barter" or "trade" a "you help me/help me learn new skills on my project and then I help you with one of your projects" kind of thing.

If your son is just now going to start being a DIYer and hasn't been helping out other people (or doing stuff around the family home) - I'd recommend the "rent it" or "borrow it from a friend" route. Not everyone is cut out to be a DIYer - or may find that they are more interested in/skilled at one area of DIYing (painting, electrical, carpentry, plumbing, for example) and will then acquire tools/gadgets that help him do the thing he specializes in.

I am the keeper of the "Family Table Saw" and a bunch of other specialized tools and gadgets - like the really big Pipe wrenches, a selection of different types/sizes of "snakes" rodding tools, anything you may use once or twice in your lifetime.... All of these things were originally Father's day gifts or purchased for a specific job by a family member .. and are now in the "lending library of tools" that live in my basement's tool shed.. The tools can be borrowed by any family member. As the youngest child - I will admit that I take perverse delight in "nagging" my siblings (or their kids) when what was borrowed has been gone too long... so I get something out of being the care taker. :) I also like "helping" my relatives. The neices/nephews have realized how helpful and money saving it is to have the collection of borrowable tools - and so now make the effort to return what was borrowed when they are done using it.

FYI: I'm biased and love old houses that need some TLC... I think your son will be fine. He's gonna learn a whole heck of a lot (and acquire a lot of knowledge and skills) as he goes thru the home purchase and fix up stages. :)
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