New to Real Estate · Louisville, KY · Member since 2019 · 127 posts · 86 votes
Hello BP community-
Does anyone have experience borrowing money from their parents to get their foot in the door with real estate? How did it go for you?
Let me explain my situation. I am going to be a sophomore in college this fall, and living in a very expensive market. However, I also am hoping to begin house-hacking sooner than later, and would like to do this in the next few years. At this point, waiting tables over the summer I just about break even with college tuition and expenses (I live relatively frugally) and likely would not have enough money for a 3.5% down payment. My parents, however, have offered to lend me money towards a down payment if I am able to find a place that meets my criteria for a good house-hacking investment. Has anyone else borrowed money from their parents to get started?
@Cory Carlson don't ever feel ashamed for using the resources that are available to you. The smartest people realize what they have and take advantage of a good situation. Good luck on your future endeavors!
I work with a lot of younger professionals and this is pretty common for those who are early in careers without a ton of savings. If you have cool parents who will help your investing definitely take them up on it. Just be sure it's a low risk deal for example a buy and hold don't go using them trying to do your first flip, etc.
I think the FHA statistic is something like 26% of FHA loan down payments were aided by family members. It's a pretty common thing.
@Henry Lazerow that makes sense! Yes, I am only considering buy and holds, not interested in flipping. Buy and hold seems much less risky. I think the thing that concerns most people is the fact that because I will be in college for the next few years, I don’t have an income other than in the summer. The only way I could do any of this while in college is if my parents co-signed on the loan and I used their credit score to get the loan. What is your take on that?
As a lender in an expensive market, nearly all of my first-time homebuyer clients utilize gift funds or co-sign from family to purchase a home. Even with frugal living, most these days are not able to save up $50-$100k down payment on their first home in my market. Also, some conventional loan products will now count 100% of your rents towards your income used to qualify, if the rents are gained from your primary residence. Rents gained from an investment property are almost always capped at 75%.
1. Do you know how this works out for them? If they cannot afford the 20% down payment, is it because they do not have enough income?
2. You talk about Conventional loans here.. I was likely looking at an FHA Loan because it would be my primary residence, is there any benefit to looking at conventional instead?
1. I think it works out great. Affording their new mortgage on their current income is not the issue....most are used to paying at least that much in rent. Coming up with the down payment needed relative to current home prices is much more difficult now than it has been in a long time.
2.I believe there are several advantages in going with conventional, if you can. I would aim for that, if possible. Many conventional programs have low percentage down payment options, similar to FHA's 3.5% down. I think Conventional loans are a little friendlier in terms of Mortgage Insurance premiums, and the ability to transition out of paying them once you have 20% equity in the oroperty