For years we’ve been hearing how our generation, the Millennial generation, relies on our parents for longer than previous generations. It’s true that many of us have moved back home after college and if you ask a freshly returned millennial why they returned they’ll likely say “to save money.” Moving back home isn’t the only millennial trend that I’ve noticed when it comes to our parents participating in our housing decisions. Nowadays it is pretty common that I see millennial, first time home buyers with increased help and interest from their parents when they purchase a home.
Having help from your parents when you go to buy a home is a wonderful gift. It means you can potentially purchase a home that you otherwise might not have been able to buy. Their aid can help eliminate that nagging PMI (private mortgage insurance) that a lot of first time home buyers often end up paying. The market that you are buying in today though is different from the market your parents bought their homes in, which can lead to a lot of questions on their part. If you’re like many of the friends and buyers I have helped purchase homes this constant stream of questions can become a stress for you. As I’ve told a few buyers: Payment = Participation. If you are lucky enough to have your parents contributing to your home purchase then you are lucky enough to have them participate in the finding of your home.
To help head off some of the questions your parents might have its important to review the differences between your home purchase and their home purchase. For most first time buyers your parents haven’t purchased a home since the infamous real estate bubble burst in the early 2000s. Since this financial event a lot has changed in the real estate market and it’s important for you and your parents to understand how these changes affect buying a home.
Previously, there was very little information needed to approve someone for a loan. Without getting into the thick of it, the lack of information is sort of how the bubble burst. People were being approved for loans that they realistically couldn’t sustain with their income. You can go watch The Big Short or read more about what lead to this particular event on the web, but the short of it is because the lack of info was a large part of the bubble bursting, a lot more information is required now to qualify and get approved for a loan. When new buyers start the loan process I often hear, “my mom said she never had to provide all this info to get a loan.” That statement makes you question why you have to provide so much and makes you doubt the process. The fact is, she’s not wrong. She didn’t have to provide as much information as you do now, but now everyone is a little more cautious to make sure people are getting loans they can actually afford to pay. If your parents are co-signing your loan they will also have to provide this new, seemingly overkill amount of information as well.
Lately, everyone has been all hyped up about “the rates going up.” Your parents are probably encouraging you to buy RIGHT NOW before the rates get crazy high. Yes, the rates are going up BUT they aren’t skyrocketing. Believe it or not paying 3%-5% on a home loan is drastically lower than a few decades ago. Many of our parents purchased their first homes with interest rates in the double digits; some as high as 16%! The financial world works in mysterious ways – when people feel good about spending money, it gets more expensive to acquire a loan. Now that people have been bouncing back from the housing crash the rates are starting to slowly climb back up. So yes, rates are going up, but I don’t think we’ll be seeing at 16% interest rate any time soon.
If you’re a regular reader of the blog you saw my post last week about there being a shortage of homes for sale across America, especially in the first time home buyer price point. This basic economics issue of supply and demand changes the way buyers make offers on homes. The big things to be aware of are:
The market is different state to state, heck county to county
Because of inflation the home your parents bought could not be purchased in today’s society for the same price
Even if your parents or siblings just purchased a home, where they bought the market may be very different from where you are buying
Working with your parents to buy a home has been a hot topic among my clients this year. I get a lot of questions about how to explain something to a parent. I even get questions directly from parents, which is totally fine. Buying a home is a big decision and if you’re lucky enough to have some financial assistance from your parents I am more than happy to talk to them! Since this has been such a big topic this year and there are many stages of home buying I’m doing a 3 part series on Buying a Home With Your Parents! This is Part 1: Preparing to Buy! Part 2: Offers and Part 3: Inspections will be coming next week!
Jessica Deleo is a licensed agent in Richmond, Virginia with One South Realty Group. All information provided is of my own opinion and intended for educational purposes only. Read full disclaimer.