Families Step in as Lenders to Help Kids Buy a Home
Employment troubles, large student loan debt, and tight underwriting standards have been major hurdles holding back potential first-time home buyers in their 20s and 30s, the Los Angeles Times reports.
Studies have shown a strong desire among 20- and 30-somethings to buy a home, but their finances are holding them back from making such a move. As such, more relatives are stepping in to provide assistance with downpayment and closing costs. Twenty-seven percent of first-time buyers received a money gift from relatives last year.
In some cases, instead of just handing over the money, some family members also are serving as “mini-lenders” themselves to help their adult children purchase a home, The Los Angeles Times reports. The family members may provide a second mortgage or first mortgage that are designed to deal with the young relative’s financial hurdles too, like paying off student loans to reduce debt-to-income ratios (which has been a hurdle for many in qualifying for a conventional loan). What’s more, the loans can provide annual returns to family members that have been known to perform better than money-market funds or bank deposits.