Home Radio Segments Real Estate Round-up Helping With A Down Payment? Make Sure You’re Protected

Helping With A Down Payment? Make Sure You’re Protected

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Terry Story, Down Payment

With Terry Story, 29-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL

The Bank Of Mom & Dad

Steve starts the segment with a question from a listener, who writes, “My wife and I cannot get a mortgage because we don’t have enough for a down payment.  And the bank won’t qualify us.  My wife’s parents have offered to lend us the money for a down payment.  If we accept a loan from them, what are some things we should be aware of?”

Terry is seeing this a lot nowadays, especially with millennials who are starting to purchase homes but need financial aid from their parents.  Because houses are expensive, buyers want to put down hefty down payments to make their monthly mortgage payments more affordable.

If you’re giving money to kids for a house, make sure it’s given in the form of a loan, not as an outright gift. As a loan, children can deduct the loan’s interest on their taxes, and mom and dad, too, can avoid tax issues and get a small return on their investment,  which works for everyone.

Here’s what’s really important: Put everything in writing on a standard Fannie Mae template because you could run into inheritance issues should someone in the transaction die, and make sure to register with the proper authorities.

Under Federal Housing Administration guidelines, you can borrow the down payment and still qualify for a mortgage provided you have enough income to cover payments on both loans.

Yard Disputes

Another listener says, “My neighbor’s tree is ruining my yard. What can I do? We live in a community with small lots. My neighbor has a huge tree sitting three feet from my property line that blocks the morning sun and sheds leaves constantly, making my yard look horrible and stopping the lawn from filling in. What are my options?”

In yard disputes, there isn’t a whole lot you can do about the sun being blocked, but you do have some rights. At your expense, you can trim branches on your side of the fence but should be careful not to kill the tree.

The best course of action is to talk to your neighbor and see if you can amicably work out a solution.

Additionally, check with your city or HOA for any ordinances against that type of tree or against fruit falls causing slipperiness and posing health hazards.

Confusion Over Inspection Reports

Another common issue deals with the home inspection disclosure of defects in a house that’s up for sale.  On this, The Supreme Court (Johnson vs. Davis) ruled that the seller must disclose all facts that materially affect the value of the property.  Realtors, too, have an obligation to disclose issues that impact the value of a property.  The straightforward path is to be honest and disclose everything up front to avoid problems and expensive litigation down the road.

For instance, with a leaky roof, there are three options: You can ask the seller to fix the repair, walk away from the deal, or work out a credit so you can handle the repairs after you buy the house.

Moreover, with time limits inherent to the closing of contracts, you have to do everything in a timely manner. So, if you want the seller to fix things, make sure you have it in writing as an addendum to your contract with details of the repairs to be made by a time deadline. Should the necessary and agreed-upon repairs not be done, reserve the right to cancel the contract, otherwise you, as the buyer, may find yourself holding the bag.

Buying a home may seem simple to do on the surface, but the process can pose complications, especially for novice buyers.  So be careful and choose a seasoned professional realtor to guide you through the transaction from start to finish.  Steve, of course, recommends Terry Story if you’re looking to buy in the Boca Raton area!


Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

Read The Entire Transcript Here

Steve Pomeranz: It’s time for Real Estate Round Up. This is the time every single week we get together with noted Real Estate agent Terry Story. Terry is a 29-year veteran with Keller Williams, located in Boca Raton, Florida. Welcome back to the show, Terry.

Terry Story: Thanks for having me Steve.

Steve Pomeranz: You know, my favorite part of the show is when we do what we call the Real Estate Survival Guide. And here we go. I’m going to ask you a question that was asked in … some time ago. It is, “My wife and I cannot get a mortgage because we don’t have enough for a down payment. And the bank won’t qualify us. My wife’s parents have offered to lend us the money for a down payment. If we accept a loan from them, what are some things we should be aware of?”

Terry Story: Aha! The bank of Mom and Dad. You know, I’m seeing this more and more. I’m dealing with a lot of millennials. My daughter is

24-years-old. She’s got friends purchasing homes; they’re starting to purchase homes. And honestly, mom and dad really have to step up because houses are expensive.

Steve Pomeranz: Yeah.

Terry Story: And they have to put hefty down payments to afford the monthly payment. So, here’s some advantages. And you do absolutely need to consult your accountant, financial advisor. But it could actually be construed as, or it can tag, the gift tax. So you want to make sure that you do it properly.

Steve Pomeranz: Yeah. Let me just interject real quickly. If you’re going to be giving money to kids, you want to make sure that it’s given in the form of a loan, not as an outright gift. That’s what you’re saying?

Terry Story: Correct. Now the kids …by doing it properly, the kids are able to deduct the interest on their taxes, and mom and dad get to avoid tax issues by getting a small return on their investment. That’s not a bad deal. Here’s what’s really important. When you do this, you want it in writing because you could run into inheritance issues should someone in the transaction die. And the loan really should be written up on a standard Fannie Mae template and registered to the proper authorities.

Also, under the Federal Housing Administration guidelines, it’s possible that you can borrow the down payment and still qualify for a mortgage, but although it’s a promissory note, it needs to go through the underwriting process.

Steve Pomeranz: Yes, so you would think that if the buyer didn’t have enough for a down payment and they had to borrow the money from mom and dad, that the bank itself would go, “Hey, you know, there’s really not enough equity in this deal because we’ve got two loans. We’re going to have the mortgage and then we’re going to have this second loan from mom and dad.” But you’re saying that they are recognizing the second loan?

Terry Story: Yeah, and because it’s all about the debt to income ratios. So if you have a good earning and all you’re missing is just down payment money, I see it all the time. And honestly, what I see in my marketplace, I’m seeing parents put down as much as 50%.

Steve Pomeranz: Wow. Whoa.

Terry Story: Hefty down payments. I guess it’s wedding gifts.

Steve Pomeranz: Alright. Let’s move on to the next one. “My neighbor’s tree is ruining my yard. What can I do? We live in a community with small lots. My neighbor has a huge tree sitting three feet from my property line that blocks the morning sun and sheds leaves constantly, making my yard look horrible and stopping the lawn from filling in. What are my options?”

Terry Story: Well, first of all, there’s not a whole lot you can do about the sun being blocked, but you do have some rights. At your expense, you’re able to trim the branches on your side. But you also have to be very careful, because if you start whacking at this tree and you cut too much, you could kill the tree. So I would be very careful with that. Now really the first thing you should do is talk to the neighbor about it.

Steve Pomeranz: Talk to your neighbor. Talk to your neighbor.

Terry Story: Is that too obvious?

Steve Pomeranz: Well, you know, people don’t do that these days.

Terry Story: Right. I would highly encourage talking to the neighbor first.

Steve Pomeranz: Yeah, you know, it’s just like, say to the person, “Switch it around. Say if I had a tree and it was doing to your yard what it’s doing to mine, you would probably be upset and you’d want to fix it. Can we work together on this?”

Terry Story: Right. And interestingly enough, if you check with your city, there may be some ordinances against that type of tree. There may be-

Steve Pomeranz: Well, like if it’s mangoes? And they’re dropping in to your-

Terry Story: You have mango droppings all over your front yard. You’re stepping in them.

Steve Pomeranz: Yeah, you don’t want that. That’s right. Exactly.

Terry Story: So there may be some rules that you might find out that, “Hey, my neighbor’s tree isn’t a legal tree.”

Steve Pomeranz: Hmm. Okay.

Terry Story: Now there are some rules, depending on the neighborhood. If you’ve got trees totally blocking your view from the lake, depending on your home owner’s association, so you might want to check with the association as well.

Steve Pomeranz: Yeah. Okay. So talk to the neighbor first. Go to the association second. Check the law.

Terry Story: Check the city.

Steve Pomeranz: And I guess if you’re going to cut back seriously, get an arborist to come in so you don’t kill the tree.

Terry Story: Right.

Steve Pomeranz: Okay. Let’s move on. A comic question that comes up concerns the responsibility of a seller or the listing agent to provide information regarding an inspection report that was ordered by a third party, previously interested buyer.

Terry Story: Yeah, this is an interesting situation. Because we see this all the time. So a deal falls apart. Seller puts a house back on the market. And next buyers will always want to know, well, why did it fall apart? And there may not really be any specific reason because buyers, for the most part, have a certain amount of days during an inspection period to walk for almost any reason. But the real question is, does the seller have other obligations to reveal what was on that report? Yes and no. The seller has an obligation.

There’s a supreme court decision, Johnson vs. Davis, that seller must disclose all facts that materially affect the value of the property. Now there’s some very gray areas. For example, if the report shows there are a couple of cracked tiles versus the report showing that there’s a huge leak and the roof is about to collapse, there’s a difference. The seller would have an obligation to disclose that. And here’s something else that’s really important. As realtors, if we have knowledge of this, we have an obligation to disclose as well. So there is a fine line. You just have to know what the items are. And in my mind, if there’s any question, you must disclose.

Steve Pomeranz: Okay. So this is all disclosed. And you’ve got a problem with the roof. There’s a leak. You go to the seller and you say, you say what? Tell me your experience.

Terry Story: Well, okay. So, then the next thing is, so you know there’s a leak. You’re going to purchase the house. You have three choices. And this is something you’ve already gotten a contract together. You can ask the seller to fix the repair, walk from the deal, or work out a credit.

Steve Pomeranz: Okay.

Terry Story: So those are your basic three choices.

Steve Pomeranz: But you admit you have to be sure to submit your request in writing?

Terry Story: Absolutely. And this goes into a whole other conversation. What’s really important, is there is a time limit? And even though our contracts are as-is with right to inspect, you have to do everything in a timely manner. So if you say to the seller, “Mr. Seller, fix this repair.” But you don’t have it in writing, you’re putting yourself in jeopardy.

Steve Pomeranz: Yeah.

Terry Story: And then the seller isn’t obligated to fix it.

Steve Pomeranz: Right.

Terry Story: And if you decide you want out of the contract, you might be too late. So it’s very important that you put it in writing what your intentions are. “Mr. Seller, make this repair. And if you don’t agree to this by 5:00, then you still reserve the rights to cancel the contract.”

Steve Pomeranz: Yeah.

Terry Story: A lot of people get in trouble by not doing the contract properly, the addendum.

Steve Pomeranz: Yeah.

Terry Story: So many pitfalls in there.

Steve Pomeranz: Well, what this represents to me is that buying a home while it on the surface may seem pretty simple to do, there are some complications. You have to be careful. And it is wise in these kinds of situations to hire a professional. The professional in this case, this is going to sound like a commercial, but I don’t mean it to. I really don’t mean it to. But Terry is a 29-year-old veteran.

Terry Story: Ha ha. I’ll take it!