Good Tips for parents helping their child buy a home

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One of the biggest obstacles many are facing is saving up for a down payment, particularly in hotter markets where competition for the more affordable homes can quickly drive up prices and put pressure on buyers to bring more cash up front.
That trend is prompting many parents to step in, some opening their wallets, others welcoming their adult children to live with them again temporarily while they save money or pay down debt.
Some 13 percent of parents with children between the ages of 20 to 38 helped their child buy a home in the last five years, according to a survey conducted by GfK Custom Research North America for lender loanDepot.
Of those, 65 percent contributed the down payment and 24 percent assisted with closing costs. The survey, which was conducted in February, included responses from 1,000 parents and has a margin of error of 3 percent.
Whether it's a cash gift or another form of aid, it pays for parents to consider how to best aid their children without placing their own financial well-being at risk.
Here are some factors parents should weigh when helping their children buy a home:
Parents may be tempted to pitch in financially to help get their children into their first home, but they shouldn't do so before going over their own finances and ensuring they can they can afford to live without the funds.
This is particularly important if the parents are close to retirement, when they will have to live on their assets, savings and investments.
"Do not in any case put your retirement security at risk just to get your child into a home," said Elizabeth Grahsl, a private banker at Prosperity Bank in Dallas. "He or she will have plenty of chances to own real estate, but you probably don't have time to catch up if your retirement is derailed."
An accountant or financial adviser can help figure out whether you can afford to make a sizeable contribution to your children's homeownership fund.
Another option is to use an online retirement calculator to estimate the impact that any big withdrawals would have on your retirement savings.
If you decide to kick in some money toward your child's down payment or other costs, it's best to go with discretionary cash, say from a savings account. That's because it's likely not earning much in the way of interest, so you're not losing much in potential gains on the money.
Avoid withdrawing funds from individual retirement accounts, or IRAs.
Generally, the IRS will tack on a 10 percent tax for anyone who withdraws funds from their IRA if they're under 59 ½ years old. Still, there are exceptions, including one allowing parents to withdraw up to $10,000 toward the first-home purchase of their child.
Even so, you'll have to pay taxes on that $10,000 at your normal income-tax rate. So if your child needs $10,000, you'll end up paying more to cover the portion lost to taxes.
Some parents may decide they can't afford to give their children a large sum of money, instead preferring to do it as a loan. But that can have an impact on the borrower's ability to qualify for a mortgage.
Mortgage lenders generally allow borrowers to use funds received as a gift from a relative to cover their down payment, closing costs or to add to their savings.
But if the money is being borrowed, the homebuyer is required to disclose that loan to the bank, which could alter their evaluation of the borrower's debt-to-income ratio. That's a calculus banks use to help determine the borrower's ability to pay back a mortgage.
If the funds are given as a gift, they don't count as debts that have to be repaid.
"When you apply for a loan they want to know how much money you have," said Erika Safran, a certified financial planner with Safran Wealth Advisors in New York. "If you're receiving gift, that person is going to have to write a letter saying that they don't expect it back."
Parents can help give their children a financial leg up on their home purchase, but there are other ways to do so beyond just giving them cash.
Local charities sometimes offer first-time buyers incentives to save by offering matching contributions. That's also a good approach for parents to take, say, by offering to match their children's savings toward a down payment.
Another option is to make sure their children are exploring down-payment assistance programs run by state and local housing authorities.
These programs can be found in all states and provide an average down-payment assistance of $11,565, according to an analysis of 2,290 such programs by real estate data firm RealtyTrac.
Most of the programs essentially lend the borrowers the money for the down payment, collecting on the loan when the home is sold, said Rob Chrane, CEO and founder of Down Payment Resource, which tracks the programs.
"There may be some programs that are targeted to certain census tracts or certain neighborhoods, but basically there is something out there for everybody who qualifies," he said.
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Hood Canal Real Estate, Mortgage, and the Economy 4/6/15

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Industry News

"If you want the flowers in your garden to be glorious and to smell good, you must risk an occasional stink." Lord Harewood. The Jobs Report for March was a stinker, but hopefully not a sign of more bad reports to come from the labor sector.

Employers added 126,000 new jobs in March, well below the 250,000 expected. This was the slowest pace of job creations since December 2013, and it ended 12 straight months of job gains above 200,000. The lower-than-expected number could be partly due to the now-ended port strike on the West Coast, along with harsh winter weather.

The number of job gains for January and February were also revised lower by 69,000, which added to the sour tone of the report. However, the Unemployment Rate did remain steady at 5.5 percent. It will be important to see if the March report was just an anomaly, or a sign of more struggles ahead for the labor sector.

In housing news, the S&P/Case-Shiller Home Price Index rose by 4.6 percent from January 2014 to January 2015. This is the biggest gain since September and up from the 4.4 percent annual rate recorded in December. The lofty price gains seen in 2013 and early 2014 may have cooled, but home price gains continue to be steady at what is considered normal levels. Also, February Pending Home Sales came in better than expected, up 3.1 percent from January and up 12 percent from this time last year.

The bottom line is that home loan rates remain attractive compared to historical levels, and now remains a great time to consider a home purchase or refinance. Let me know if I can answer any questions at all for you or your clients.

 Real Estate Miscellaneous Stats

Seattle Area January Values Up: Home values in the Seattle area were up in January but at a slower rate than in December. King, Snohomish and Pierce County values were up .7% from December. Annual appreciation rates are running at 6.8%. That pace is slighty below the national average for January of .9%. While appreciation rates have slowed they are still running two time higher than wage increases. This is cause for concern as affordability is already a factor for many buyers. Average Seattle area homes values are at Spring 2006 levels but have not yet rebounded to peak levels in 2007. The slowing pace of appreciation is reassuring to market experts as robust price increases are a danger to a sustainable recovery. 

Rent Increases Outpace Income Gains:    A study by the NAR shows that wages rates are not keeping up with rent increases. The NAR looked at data from metropolitan statistical areas across the country including income growth, housing costs and the share of rental households. Homeownership rates have declined since the Real Estate Market peaks thus driving up demand for rental residences. The lagging buying activity among Millenials and slow growth of new construction are putting pressure on rental demand. Cities where rent increases are outpacing wage increases included Seattle along with New York and San Jose. Homeowners are experiencing the benefits of wealth increase while renters are feeling the pinch and a sense of falling behind. With the recent rise in home values there is difficulty for first timers to save enough for down payment. The study shows rent increases in Seattle since 2009 at 32.38%. NAR Chief Economist, Yun, points to relieve needed in the form of new construction for first time buyers.

King County Home Values Up Over 6% from 1 Year Ago: Record low inventory in King County put pressure on home values across King County. The ratio of listings to pending sales was the lowest level for any February going back to 2003. Brokers and agents are in the uncomfortable position of wanting to discourage their clients from joining the frenzy and yet wanting to help them secure purchase contracts. Long time Real Estate veterans are concerned that this not lead to another bubble condition in the market. Southeast King prices jumped up 16% to a median value of $310000.00. North King rose 15% with a median value of $419000.00 with sales up 74% in that area. Seattle values rose 13% to $520000.00 for median value. Eastside median values are up to $617,645.00. Snohomish county values are up 5% compared to last year.

 Loan Program Of The Month. 1 Year Out of Bankruptcy and Foreclosure: One of our Portfolio options is offering up to 75% financing for those just 1 year out of major credit events of bankruptcy and foreclosure. Interest rates are reasonable and the loan amount will go up to $1.5 million. We are starting to see more of these options come back. Underwriting will  be rigorous as lenders confirm the temporary nature of the event surrounding the recent derogatory history.

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