
Subject: Re: Mortgage: How much to help a kid? Date: 6/30/2006 10:23 PM
Recommendations: 9
My kid sister and bro in law are buying their 1st home. They're college grads, professional and on their way to a fine future...but just starting out they're not beefed up in the savings department.

Her family..meaning myself, and our parents are fortunate in life...and lending her money, or gifting her with money is no problem whatsoever. I was hoping to explore 2 things:

1.)Helping young ones start out. On one hand I feel it's good for them to live check to check while starting out and take lumps. On the other hand, what's the big deal with just gifting her with some down payment is a nice thing to do for family.

2.)Her house would be $460k. She can get 80% mortgage/15 % second/ 5% mortgage insurance. However,,,,the more we give her, the less interest she'll pay.

Is there advantage in helping her go from 5% down to say...10% down? Obviously the interest savings, but is it a wise financial move?

Thank you in advance. Jedi

I love my siblings and am economically better off than they are. However, if I were to even consider giving them money for a downpayment, I would make it one of my conditions that they had to 'play house' for at least a year before they purchased. To 'play house' is to figure out how much more the house will cost on a monthly basis, including mortgage payment, additional utilities, homeowner's insurance, maintenance, etc. than their current rental. Each month, they are required to deposit that amount into a savings account, which becomes untouchable. I would request to see the account statements prior to providing any downpayment assistance.

'Playing house' allows them to confirm how much they are comfortable spending on a house on a monthly basis, and it will also provide them with a nice e-fund and/or more of a downpayment.

However, it sounds like your sis may already be too deep into the process to do this. But if they didn't just graduate in May, and haven't been able to save much toward a downpayment since then, why do you think your assistance will end with the downpayment? If they are renting, probably at a much lower monthly cost than 2 mortgages will cost them, and are still living paycheck to paycheck, helping them buy a house will be helping to finance a lifestyle that they cannot afford, and will probably hurt them in the long run, rather than helping.

If they did just graduate in May, they are way too early in their careers to be purchasing a $460k house. It is very likely that early in their careers that they will want to change jobs or go back to school or some other life event will happen, which will cause them to want to sell the house. A $460k house will likely have $40k - $50k in buying and selling costs, and if they don't put at least 10% down, they may have to bring money to the closing table when they sell.

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