Business & Real Estate: Helping your children buy a home II

Philip A Raices

If you read Part 1 from last week’s column, you can now understand how crucial it is to assist your children as much as you can or have them do it on their own, if they are financial capable, to earn that elusive and challenging down payment to purchase.

But, it’s very lucrative for landlords, but not very beneficial to the younger generation, who are forced to live at home for an extended period of time until their loans are paid down or paid off or worse case scenario, paying “wealth draining rent.”

I have mentioned in a previous article, that renting in today’s market, is more expensive in 48 out of 50 states, except Alabama and Mississippi, where most of us are not necessarily moving now or in the future.

So it’s that all important down payment and also qualifying for a mortgage, that is needed and necessary to make that first purchase.

Most crucial is also to get past the “powerful and main deciders”, the co-op boards; unless you are fortunate to be able to afford a home.

However, some co-op boards will want a debt/income ratio, as low as 26 percent and some up to 36 percent; but one never knows, since legally, they do not have to provide any information to guide buyers.

Except in Suffolk County, the law states, that if one gets turned down, the co-op board has 45 days to explain the reasons why.

I hope one day soon that our legislators in Nassau, will get their act together and pass a similar law, so those that sometimes get turned down, who are more than qualified, will know the reasons why, or at least be able to resubmit their applications to get approved the second time around.

Unfortunately, many new buyers from other countries don’t always have their money in American Banks, which causes major risk issues for the co-op, which is understandable and another reason, some will get turned down.

As a suggestion, co-ops might consider a safe amount of money of 1-2 years of maintenance in an escrow account with the co-op corporation getting automatic payments for some purchasers, who may not have the exact income, debt/income ratio or maybe because of a divorce, where, through no fault of their own, one spouse tarnishes the credit of the other.

Even sickness, whereby credit scores had been negatively affected or other reasons.

The co-op boards should try to be a little creative and come up with more reasonable solutions for those with specific circumstances and situations that might have not been within their control.

When purchasing a Co-op, these are things that all buyers should be cognizant of and make a solid plan by fixing credit, and having enough income; but a Condo purchase, generally, doesn’t have an approval process.   But one has to show proof of funds and sufficient credit and debt/income ratios to satisfy the seller’s concerns to arrive at the closing table.

So that being said, parents, you need to decide, if you are able, or want to gift money to your kids (tax free), whereby, there is no repayment agreement (only way to do it with a co-op, but can make it easier to purchase a condo or home).  With interest rates being at a 60-year low, inventory at an 18-year low and demand at an approximately 35 year high; again, it’s my “Perfect Storm” scenario, where it’s still an excellent time to purchase, invest and sell for the foreseeable future, but the worst of times to be renting.

As they say, we can’t take it with us.  So maybe the enjoyment of assisting your children purchase, and seeing their financial footing become more solidly planted and having their wealth increase going into the future, will put a “Big Smile on Your Face” and a way to transfer some of your liquid assets to your heirs, while your living.

As of 2015, the basic exclusion (tax free lifetime gift) was raised, $90,000 from 5.34 million to 5.43 million lifetime.

So each parent can transfer tax free that amount, but one must keep very accurate records upon one’s passing.

This is in addition to the $14,000 per year per parent that can be given as a “tax free gift” to each child.

However, talk to your CPA, to clarify your specific situation and any circumstances that might enhance or interfere with your tax free gifts to your children.

Phil is the owner of Turn Key Real Estate at 7 Bond St. in Great Neck.  He can be reached by email: Phil@TurnkeyRealEstate.Com or by cell (516) 647-4289 to answer any of your questions.  To search for any type of properties  or to see what your home is worth or homes that have sold in your area, go to WWW.Li-RealEstate.Com.

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