Should a Parent Give Their Child Money for a Down Payment??

Should a Parent Give Their Child Money for a Down Payment?

According to the National Association of Realtors, 36% of first time home buyers got help with their down payment from family, up from 28% the previous year.

When talking to first time home buyers about getting help with the down payment, be aware of a few things.

• Gifts are allowed on conventional mortgages but at least 20% must be put down on the house in order to use the gifts.
• Each parent can give up to $13,000 tax-free per year to their child and $13,000 tax-free to their child’s spouse.
• If a parent co-signs with their child but will not occupy the property, the buyer will only qualify for rates as a primary residence if the loan is done through FHA with 3.5% down or Freddie Mac with 20% down. Otherwise, the rate will be for an investment property at around 1% higher.
• The gift must come from a family member with confirmation coming from a gift letter and cancelled check.
• Gift funds are most common on FHA loans where only 3.5% is needed as a down payment.


Mortgage Rates Rising Rapidly
Highest Since Early Summer

From what I can grasp, there are 2 main reasons why the rates have increased more than half a percent in less than a month.

First, investors are becoming increasingly wary of the United State’s ability to pay back its debt. With the proposed 2 year extension of the Bush tax cuts seemingly approved, the U.S. is projected to lose up to 900 billion by some estimates over the next few years in tax revenue. With the federal deficit already enormous, many investors and even some rating agencies are starting to worry that the U.S. will not be able to pay back all its debt.

Secondly, the expectations for growth in the U.S. economy have increased dramatically over the last few weeks. With consumer confidence rising, retail spending up, and manufacturing orders beating projections, economists are predicting larger growth in the U.S. economy over the next few years.

These two occurrences have driven investors out of safe haven assets like treasury bonds and mortgage backed securities and into higher risk, higher yield investments. When this happens, bond rates must increase to attract investors who can get higher returns elsewhere. Hence, higher mortgage rates.

My Two Cents:
The U.S. unemployment rate still stands at 9.8%, and with consumer spending making up almost 70% of all GDP, I think investors are being a little too optimistic on economic growth.

Let’s at least hope the optimistic economic forecast translates into a higher number of sales in the purchase market, because higher interest rates and declining homes sales and prices could be disastrous for the housing market and the overall economy.

Info gathered by: Michael Ribas

@ SunTrust Mortgage