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I'm home buyers however are turning to the good old bank of mom and dad.
Prices are rising and banks are demanding hefty down payments but our next guest says failing loans can do more harm than good for both parties joining me now with the -- -- Greg McBride senior financial analyst for Bankrate dot com Greg thanks for coming in.
You know you look at -- help for housing in the New York City I hear this all the time.
Mama -- helping us out we're getting a loan from mom and dad mom better getting -- a guest and if you look at the national numbers 24%.
Of parental help is actually get.
6% is allowed.
You're not really a fan of this why.
I know I'm not and generally.
It did because if you're not -- -- -- and and have the ability to continually -- savings.
You really shouldn't be buying a house now I can't understand -- high cost markets that down payment even a modest down payment.
Is a pretty big chunk -- change.
Haven't mom and dad help out completely understand that but the fact is lack -- down payment is the biggest barrier for first time homebuyers.
It's why you've seen.
Popularity the FHA program serves the weight of it as.
-- down I am and I'm -- our goal let you know I think yeah I think you need to have.
The ability to have to accumulate savings.
On a consistent basis before you buy a house as well as after you buy -- -- And let's just talk about why that's important it's because it out over time you're gonna need money to repair that home to fix it up for other things so.
After the demonstrated ability to put together some savings for any eventuality as you know some kind of savings for emergencies as well.
You say that as what we understand to be true is that banks.
Don't like these gifts for mom and dad and they don't like the loans for mom and -- -- why is that.
-- -- -- can be problematic because just like any other -- the fact that you now have this debt and a monthly payment associated with it.
Could throw your debt to income ratio out of whack -- gift stands a much.
Give gag gift is a much better way to -- yeah there's no strings attached to it.
And the only -- something get even then unless you're getting an FHA loan you're not going to be able to cover the -- down payment that way.
That that can be a real big help in the you don't have to worry about the unintended consequence of you know that monthly payment on this loan from mom and dad undermining your ability to get -- from mortgage in the first.
It's now what -- we get around all of this of course is to give -- -- the parents give a gift to mom can give the gift and dad can give a gift and they can both be tax free.
Tell us about that.
Yeah you really -- -- have to keep them undertake if you're the parent you're the one given mode -- -- here.
Dollars on an individual basis you can only give up the 141000 dollars any more than that.
You have to report it to the IRS and then you're subject to the gift tax but you can stack that in the way that works is.
Each parent can give 141000 dollars to their child.
-- and another 141000 dollars to their spouse seek import a total of 56000.
Dollars together in one gift.
And not run afoul of the -- gift tax -- Well -- Cuba bothers me about that is mum and dad have financial needs to you know you want to retire you don't wanna be a burden on your kids as you get older and I hardly think that.
People need to put together their own down payments so they feel -- sense of pride in ownership.
I think the whole idea is problematic when mom and dad do all the work in the kids just live in the house.
I absolutely -- particularly to greater burden of health care and retirement savings I mean the parents really have to look out for number one year.
You know whether it's sending your kid to college -- -- -- -- my house I need -- it too often.
Parents out of a desire to help their kids undermine their own financial security.
And look did did downside to doing that as you may end up in the spare bedroom -- that house you help your kid by.
You know if you end up giving away too much money in and -- that taking care of your own financial security.
Gather would be a disaster right -- -- about two rising costs when it comes to buying -- home first of all closing costs are up dramatically 6% this year.
And mortgage rates are continuing to increase.
Greg did you look -- in the future you look to this fall you look to next spring are we just gonna see those costs of buying a home continuing to rise.
Well I don't see anything reversing the trend on the closing costs -- -- particularly the -- in compliance burden on mom a lot of lenders.
It's a better economy that brings about higher mortgage rates and it's the better economy that's bringing people -- into the home market place to buy homes.
We have several years were mortgage rates were really really well but when the economy stinks nobody wants to my house so he can have to take two in concert with one another.
I wouldn't worry about it in the sense that you know you running out to -- -- house before your truly ready.
Out of fear of of rising mortgage rates I think is a big mistake.
You're better off putting your best foot forward -- to you need to take extra time to save up for the down payment pay down other debt or improve your credit.
Go ahead and do that.
Because it's just the beginning of the financial demands on your -- expect but that's that's pressure off.
Graphic or Charlotte -- -- you said all right you're gonna have almost a -- you get in the house.
Thanks so much for coming on -- always good to see it.
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