WHY MORE HOMEBUYERS ARE TURNING TO FAMILIES AND FRIENDS FOR HELP

You’ve found the perfect starter home. It’s in a great neighborhood, and your work commute would be manageable. Even the price is reasonable based on your market. There’s only one problem: You lack the necessary funds for the down payment. What do you do?

Consider reaching out to relatives and friends for assistance, experts suggest. And apparently, that’s what more first-time buyers are doing.

The National Association of Realtors’ 2019 Profile of Home Buyers and Sellers report found that, between July 2018 and June 2019, 1 in 3 first-time home purchasers used down payment aid from family and friends; the study also revealed that those who buy first homes with roommates doubled — from 2 percent to 4 percent of all buyers.

Nicole Rueth, producing branch manager for Fairway Independent Mortgage in Denver, says it’s no surprise that more people — especially first-time buyers — are asking for help from loved ones and pals nowadays to realize their real estate dreams.

“The lion’s share of first-time buyers are younger millennials. Many of these people have crippling student loan debt. And coming up with the often-expected 20 percent down payment is particularly difficult when you cannot save enough to outpace growth in inflation,” she says.

Dawn Ryan, senior loan officer for Embrace Home Loans, based in Middletown, Rhode Island, echoes those thoughts.

“Home prices are higher today and out of reach for many. Plus, there’s less disposable income to squirrel away for that down payment due to significant cost of living increases,” Ryan says. “Also, even though a lot of homes may be within the range of firsttime buyers, they require updates or repairs; these prospective buyers wish to hold onto as much of their capital as possible to pay for those upgrades or repairs.”

While you can always ask someone close to you for mortgage help later, it may make more sense to request financial assistance now so that you can get your foot in the door of a home. That’s where a gift fund can help. A gift fund is money donated to you by a relative or partner that can be used for the down payment, closing costs or financial reserves. For conventional loans (backed by Fannie Mae or Freddie Mac), most lenders will allow you to receive gift money from a parent, sibling, grandparent, child, spouse or domestic partner or partner you are engaged to.

If you plan to put down 20 percent or more, all of it can come from a gift fund; for down payments less than 20 percent, some of it has to come from you, but a portion of it can be received as a gift (different rules apply depending on your loan and lender). For FHA or VA loans, 100 percent of the down payment can be gifted so long as your credit score is 620 or higher.

For any of these loans, the gift money has to go toward the down payment on your primary residence or second home. You’ll also have to provide the lender with a letter indicating the name of the donor and this person’s relationship to you, and all parties will have to agree that the gift money will not be repaid to the donor.

“Gift funds are not allowed to be paid back. If they were, this would be called a loan and not be considered a gift,” Ryan says.

Britny Lawhorn, the assistant publisher for mortgages at Finder. com, says there’s no shame in asking a loved one for help via a gift fund.

“So long as you are respectful and comfortable with the possibility of taking no for an answer, you should not be afraid to ask for assistance from family,” Lawhorn suggests.

Still need a boost to become a bona fide buyer? Consider purchasing a home with a friend or family member on the title, recommends Andrew Saltman, CEO of Carbon Capital in Ponte Vedra Beach, Florida.

“We’ve seen cases where two or three friends will purchase a home and live together or rent out some rooms, with all sharing in the sale or rental proceeds,” Saltman notes.