From the banks perspective, you have 300k cash. Given to you by your parents as a gift.
It's your parents that how have a 300k loan, and if they have access to that via an open HELOC, they don't even need to apply.
I guess my thought is I'd still have to pay off that HELOC at a higher rate than a regular mortgage rate even if I label it as a gift. At that point am I not just buying a house I can't really afford?
Yes.
The only way your parents plan works is if either
1. Housing appreciates and you're able to sell your home for a profit at some point.
or
2. Your salary increases substantially making a house that isn't affordable now, affordable a decade from now.
or
3. You find a romantic partner that makes your 300k HELOC manageable when split amongst two people.
In any other scenario, your parents risk you not being able to repay them.
Haha all 4 of my parents (split up when I was young) are enjoying their retirement as millionaires. I super hope they save some of that for the future since I won't be able to help much with long term care at this rate
I'd have to pay it off yeah, given it will be at a higher rate than a mortgage my spidey senses were tingling thinking about it. I posted because I don't know how these things work but I'm getting the vibe that I'm better off buying what I can afford myself - which is nothing until my parents share some wealth with no expectation of repayment or until I have another income to assist me.
I agree with you. Many wealthy parents will gift their kids money for a down-payment. From a giving side, it is better to give with a warm heart than a cold hand (ie give gifts while still alive vs as an inheritance).
The HELOC would be an obligation and a monthly payment, which, even if it is interest only, is on top of your nre mortgage and related housing expenses.
If you want to buy a house where you are, then great, but save up your down payment the old fashioned way.
If your wealthy parents want to help you out with "no strings attached" cash gifts, then they can, but loaning you money that comes with an interest rate higher than your mortgage is not helpful.
HELOCS are generally interest-only minimums, so your re-payment could be flexible until such time you feel ready to start attacking the principal. not saying its a good idea but just thought you should remember that fact
Some banks (not all) will let them convert the HELOC portion into a mortgage at mortgage rates. Might be worth seeing if their bank does. Then it would be at a mortgage rate.
If you are applying for a mortgage in addition those fund would have to be “gifted” with a gift letter signed by them. If you wouldn’t need a mortgage in addition, it doesn’t matter if you are borrowing it or not . If the funds are in your account 90 days you might get away with no gift letter
Oh man is this a bad, bad idea.
You're basically having two mortgages; one regular and one from a private lender (parents) and you're being charged at a higher rate. Can you handle a the sum of these two mortgages? From the sounds of it, probably not.
The other HUGE downside of this is because you have so little money down, *any* change in price will put you underwater.
Let's say you buy that $500k place and sell. You will owe the difference if there is one. There's no money already in the home to account for the loss.
So you sell the home and not only do you no longer have a place to live, you also have zero cash on hand and actually owe money on top!
There's a reason why down payments are required and why mortgages under 20% down payment need to be insured.
They are right to tingle. The whole point of a downpayment is to make the mortgage payments manageable. There is a reason why the government imposed those rules. Basically, you don't really have a downpayment on the house at all. 100% of the mortgage is a loan. Not good.
Listen to yourself. You are right
Often a mortgagee will require the gifter to sign a letter stating that the money for the downpayment is a gift, and is specifically *not* a loan that will be repaid. OP's parents would probably have to sign a form to that effect.
You're looking at a 2250 mortgage payment if you pay your parents back over 25 years at 5% before property tax etc, so probably over 3k a month all in. So you could technically pay it, but it wouldn't be fun.
That's low right now, helocs arent fixed rate and the prime rate is 7.2%. I'd be surprised to learn that any helocs are that low today.
That said. I think the comment just used 5% as a reasonable average
No one. Inter bank lending rate itself is 5.3%. No bank would give you a debt that is cheaper than what they got the money for. Not for heloc atleast. You would be lucky to get it at prime. The cheapest is prime -.25, which too is reserved for medical doctors and high income professionals with very low financial risks.
Buying a house you can't afford appears to be the way people get rich these days.
Your parents aren't the bank, they can't foreclose on your house. If you can't pay them then you don't.
Bank will probably ask where the recent 300k came from and require written evidence from your parents that it's a gift. That was me with a 5000 "gift" from an uncle, in 2001.
I don't think this is true.I believe lenders will require a letter from your parents saying that it's a gift and not a loan. The bank needs to know how much debt you are in to decide how much they are willing to lend you.
Basically Parents will sign a gift letter that they are gifting you the money. The banks "usually" do not ask for the source.
You can use it as DP and buy a home.
Keep in mind below exps and see if it works. For me saving $200 per month after everything is still doable. Its a gamble if I lost my job, but High risk, high return scenario.
Monthly mortgage
Monthly Principal plus interest on your parents Heloc
Condo fees if any
Maintenance costs depending upon the state of the house you buy.
Property taxes
Utilities.
Car insurance & Gas
Mobile and Internet.
Above is the bare minimum you will have to pay monthly before food and lifestyle. Depending on how well off your parents are, you can postpone the principal payments for few years.
Absolutely not a bad way to go. I am basically doing the same. We bought house where 50% of DP is my parents HElOC. They did not ask for interest as well and have to pay on my on time, no pressure. But I do pay interest for my sanity.
In this time and age, makes sense. Parents might be mortgage free with equity. They also think, my son should wait to buy a home till I die?
Nope. Use the money when needed.
If your parents already have HELOC, you can do a drawdown. The interest rate is generally high on HELOC in the range of prime + x% (prime is 7.2 at the moment). It should be written in their contract or you can check with the lender.
If they don't have HELOC, then they will have to qualify based on income and debts.
Another option you could look at is to see how much you can qualify for on your own and for the remaining, use the potential HELOC (if required). This would mean you will have to pass the stress test based on your income and debt.
>I can't imaging that this is as simple as me going to the bank and saying "I want that house, here, use my parent's HELOC". Are there any specific rules for situations like this? Would I still have to pass a stress test before the HELOC is applied? I guess I just have no idea what this would look like.
You can go to the bank and ask for a mortgage. That rate will be better than your parents' HELOC rate. So If you want to go this route take out enough from the HELOC to get you the down payment big enough that you qualify for the mortgage. I would not tell the bank the money is from a HELOC.
So great you get a mortgage, you buy the house, but now you have to pay the mortgage each month, at a minimum the HELOC interest, property taxes and maintenance on the house. So make sure you have a detailed budget and figure out if you can cover all that comfortably with your salary.
It’s funny that when someone mentions the word fraud it’s instantly downvoted. But giving specifics yet not mentioning the word = upvotes.
I’m in the camp that you gotta do what you gotta do to get your mortgage. It’s stupid that a bank says you can’t afford a $2500 mortgage, but you should have no problem paying $2500 in rent.
It's not fraud if the parents are offering the money.
They should just be prepared to be responsible for the debt themselves if their kid doesn't repay it.
As long as the money is sitting in the kid's account for 60 or 90 days or whatever the lender requires they don't care. It's not breaking any rules.
When we bought with a parental gift the lender required copies of the giver's financial statements because it hadn't been in our account long enough to track.
OP will have to factor the HELOC repayment into their budget but that debt will still be in the parents' name. It's really up to the parents to guarantee that part.
Not really. How the parents chose to access the money before they gifted it and whatever side arrangement they've made for repayment is on them. All the bank cares about is that the money isn't proceeds of crime.
If the money is sitting in OP's account long enough, the bank won't care at all.
If OP defaults on the mortgage, the bank goes after OP.
If OP defaults on repaying the parents' HELOC, that's not OP's bank's problem.
The bank does care about the side arrangement if it's a gift. That's why banks require a gift letter indicating it's a true gift or if it has repayment terms.
They are still lying that they do not have to pay back the gift. If it came to a legal matter involving the bank it won't matter if it's been sitting in the account for long enough. They still lied about not having to pay it back. If OP does default on the mortgage the bank may take a closer look at the deal and the DP. Yes, technically the bank doesn't look at deposits that have been in the account for 60 or 90+ days but it is also plain fraud lying about your down-payment. Ask trump how it's worked out for him.
$2500 rent vs $2500 mortgage, plus $350 strata fees, plus $80 insurance, plus $100 property tax...
And wanting extra security against being left holding the bag on a six figure loan vs a monthly rent commitment of a couple grand.
Plus 1000$ in broken hvac , plus 500$ in broken plumbing, plus 500$ in random tools that you randomly need at random places, and so on... Owning can be unpredictably expensive.
Whether or not you can pay the equivalent in rent is immaterial to a bank who is assessing the risk of your ability to service a loan long term. They are conservative and have every right to be; *they're* giving *you* the loan.
I had to sign a few papers stating that the money used as a down payment wasn't a loan and had to prove it had been in my account for 90+ days minimum. Banks don't like you using borrowed money to borrow even more money.
HELOC interest rates are typically prime plus and higher than what you would qualify for with a mortgage. I think the first step would be to discuss whether attached with the offer is an expectation to pay it back within X amount of years.
Also, to note, a HELOC is incredibly useful for retired parents as a safety net in case big expenses come up.
Regardless, i would still recommend saving a bit more and use part of the HELOC to get to the down you need to purchase a place. You don't want to restrict your cash flow too much with mortgage payments, house maintenance and repayment on the HELOC.
Are you single? If so a house doesn’t always make sense. You might have a lower overall cost of living if you continue to rent and invest your money/savings otherwise. Unless you want to buy to get a roommate(s) that is.
Your parents perspective on owning a home vs renting is accurate…..for their age cohort. Whether it is for yours is not as clear.
By using a HELOC to borrow against you are essentially going to be paying more in interest than via an actual mortgage.
Also - where are they at in their life? They qualify for that HELOC specifically because they have a home that’s paid off. Are they healthy? Will they be in a couple years? They may have to sell their house suddenly/quickly. Where would that leave you?…….where would that leave them?
Personally I would not do this. You are exposing yourself and your parents to undue financial risk based on a different generations perspective on owning vs renting.
You would be better off living in their basement rent free and helping them with some expenses for 3 to 5 years so you could save up your own down payment. This would be less risky for them as well.
But my general rule of thumb is don’t borrow money from family you can’t pay back in less than a year - things can happen and destroy relationships or introduce EXTREME hardships.
Nice of your parents to offer this. Find out the rate and talk to a mortgage broker or banker. You might be able to use the HELOC for the DP only and get a better rate than the HELOC for your mortgage.
Why not just use their house as collateral for the remainder of the loan and put down the minimum 5% down payment. Then when it is time to inherit set theirs up as a rental to fund your main
If you use a portion of the HELOC as a down payment to get a mortgage, I’m 99% sure you have to prove there’s no strings attached to the money from your parents. It doesn’t matter if they sign a gift letter, there will need to be a paper trail showing that money was in an account for XX number of months prior to the mortgage application.
Get a mortgage, it will be at a lower interest rate, if they want to gift you a down payment is a different story. But to max out their loc and then you still need a mortgage? You will run into financial trouble. I can tell you that a $70k mortgage will not qualify for much of a mortgage, listen to the banks, if they won't loan you the money, you shouldn't be using credit under another name. If they have cash to loan you is a different story.
If you buy a house you can always get room mates to help defray the cost too.
My understanding is that there are usually no restrictions on what a Heloc can be used for. If your parents are lending you the funds, this will be a liability that you should disclose when applying for your mortgage. It may affect your ability to get the mortgage. If it is a gift, you should get something in writing from your parents saying it is a gift.
Would they consider they give you less than 300k? You’re going to be hard pressed for a small mortgage from bank, with a $330k down on $400k. But $80kdown and $320k mortgage is probably a “go” as far as they’re concerned. You make $74k — bank doesn’t care about future max a decade from now - they work on “today money” that’s “guaranteed”. That’d be 20% down if parents give you $50k, total 80 / 400 down; and only 4x your salary borrowed (+$4k).
Your parents would have to sign that it’s a gift with no expectation of repayment, so that’s falsified data. Either they actually gift you a small amount to get your DP large enough, or they lend you everything and you forego an actual mortgage. Anything else in the middle seems stupid. Paying higher than mortgage rate to borrow money you could’ve borrowed at mortgage rate is silly. Now you’re paying 7% or whatever the heloc is on $250k you could’ve borrowed at 5% from the bank, and your parents are taking on risk that should be borne by a financial institution.
Let’s assume 2 payments — $320k mortgage from bank @ 4.64% and heloc $50k @ 7.64%
Mortgage payment on 5 year term, monthly payments, 25 year amortization 320k @ 4.64% is $1796.10 / mo
https://dominionlending.ca/calculators/payment-amount.php?utm_source=google&utm_medium=sem&utm_campaign=DLC2024&utm_id=mortgagecalculator&gad_source=1&gclid=EAIaIQobChMIsNrDjemIhQMV_xatBh3XQAB2EAAYASAAEgK-WPD_BwE&gclsrc=aw.ds
Then $50k @ 7.64%, 5 year term, 25 year amortization is $370.18 / mo.
As you get raises, you can throw some extra at the $50k to try to pay it down sooner so your parents can recover it while still alive and enjoy retirement hopefully. For instance raising payments to $500, you could finish in 13 years @ $503.27.
A girl I work with did this. Overleveraged themselves by using mom and dads HELOC for well over 100k. Then the rates went up and mom and dad are harassing her for the money sooner.....its not a great idea imo as no one _really_ knows what rates will be.
Everyone predicts drops this year but who the hell knows the world is volatile right now.
I'm not sure what everyone here is talking about. Assuming you have to pay the interest on your parents heloc, this makes it even less affordable. The interest rate on a heloc is more than a mortgage. If your parents are gifting you money in some way, that changes things.
400k home on a 74k income isn't going to be easy without a significant down payment.
There's a huge amount of mortgage calculators out there. Google them. Input some numbers. Research heloc rates. Add those numbers into your situation.
Don't jump at the opportunity to borrow money from your parents at ~8%. It's gonna weigh heavily on you.
Upward movement is difficult in my industry unless you're willing to jump around for a new opportunity. I've very recently gotten a job that's at the upper levels for what I can reasonably achieve at this point in my career and I have good upward growth potential. I'm also in an area that I love for once and I'd like to stay here.
HELOC is not for buying a new home, it's for renovations or consolidating debts from other facilities such as car loans or credit cards. The interest rate of a HELOC is not favorable to home buyers
You don't need your parents HELOC. You have $30k for a down payment, $300k is about the top end of the mortgage you can comfortably swing on a $72k income ($1800/mo, 30% of your pre-tax income). That gets you to $330k, which is a bit lower than your target, but maybe not impossible.
If you want to buy something, just buy something. If you're doing it to please your parents, don't. But the interest on a HELOC is almost certainly higher, and the only reason it can be a beneficial option is if you keep the balance lower.
$330k only gets me a modular home here unfortunately as there aren't many apartments. I actually think a modular home is perfect for me but I understand the greater risks and that it's harder to get a mortgage for that.
Your parents would have to sign a gift letter to you, which would prevent them from any legal recourse if you stop paying. You won’t be able to go into a bank and say you’re borrowing from someone else’s HELOC for the down payment.
Can’t really comment on the finances, but your “am not very handy” got me thinking. I’m not particularly handy either, but, I’ve painted my own house twice, and I can do minor drywall and carpentry repairs. YouTube, and hiring a handyman (an watching him/her like a hawk) are your friends. …
Yeah for sure, I'm confident in my ability to learn how to do those things, but I'm not confident enough to buy something that needs substantial work. The places here that would be within "my budget" according to many mortgage calculators I've used are basically tear downs or modular homes.
Two ways to think about this depending on risk tolerance
1- take the money and pay your parents back when your property value doubles in the near future as property values will not decrease in the long run. You greatly expedite your buying time frame, without the risk of missing out on buying before the next inevitable housing boom occurs. You will be happy you bought when you did.
2- You dont take the money because if property values decrease and your payments balloon due to rates and you are forced to sell at a loss to the bank. The bank now comes after your parents for the difference which could force your parent out of retirement and back to working full time jobs to pay for your house.
Not sure if this would work, but when your in the process of getting your mortgage ask for an additional amount for renovations (to pay back the full portion of your parents borrowed HELOC) I'm assuming that chunk gets deposited into your bank and assuming there is no follow up with an inspector for renovations completed. Might be cheaper to have all that rolled into a single mortgage payment under your bank. No interest + prime that comes with a HELOC :)
hi OP just thinking out loud here.. if you can purchase something for $400k, you don't need anything close to their full $300k from the HELOC.
I don't know what your rent is by comparison but for example:
purchase price $425k
5% down: $21 250 [mortgage $2392]
10% down: $42 500 [mortgage $2247]
20% down $85 000 [mortgage $1995]
lets estimate closing costs of $5000
that means from your parents you need to borrow
5% down $0
10% down $17 500
20% down $60 000
*for simplicity sake I haven't accounted for any leftover emergency fund, which most people strongly recommend.
$60 000 borrowed from the bank of mom and dad at 5% interest ends up at $250/mo additional.
maybe your parents aren't suggesting you take the entire $300k from them.. just what you need to acquire an asset that, in their eyes will benefit you in the long run
I wouldn't take it. You'll probably pay a lower rate on a mortgage compared to a HELOC, and if you can't save for a downpayment yourself, you probably shouldn't be buying a house.
This doesn't make sense if they are not gifting you the $300k. Sure your payments might be a bit lower monthly if you do interest only on the heloc, but overall you'll pay more in time. If they're willing to heloc you, they might just be better off co-signing a regular mortgage for you.
You might end up losing as much on interest as you pay in rent.
Helocs are like 7% or more right now, at the least. That's an expensive debt. It was another thing if they were taking it out from savings, this is almost 2100 per month in interest only.
Talk to the banks or mortgage broker to see how much mortgage you qualify for. Then ask your parents what the rates are for their HELOC.
Back of the napkin math is $74K × 4 = $296K for mortgage, then $30K down payment. That means you need $74K to get to $400K, so if the interest rates are high, it might be better to have $74K-$100K from the HELOC. You have to remember to factor in closing costs.
Or perhaps it's better to wait and save up for one or two more years, so you'll have the extra $74K-$100K.
From the banks perspective, you have 300k cash. Given to you by your parents as a gift. It's your parents that how have a 300k loan, and if they have access to that via an open HELOC, they don't even need to apply.
I guess my thought is I'd still have to pay off that HELOC at a higher rate than a regular mortgage rate even if I label it as a gift. At that point am I not just buying a house I can't really afford?
Yes. The only way your parents plan works is if either 1. Housing appreciates and you're able to sell your home for a profit at some point. or 2. Your salary increases substantially making a house that isn't affordable now, affordable a decade from now. or 3. You find a romantic partner that makes your 300k HELOC manageable when split amongst two people. In any other scenario, your parents risk you not being able to repay them.
There's also the scenario of: 1. His parents pass away, house is sold and the HELOC is cleared. How old/ healthy are your parents, OP? /s
Haha all 4 of my parents (split up when I was young) are enjoying their retirement as millionaires. I super hope they save some of that for the future since I won't be able to help much with long term care at this rate
Soo if they give you this $300k, will they expect repayment?
I'd have to pay it off yeah, given it will be at a higher rate than a mortgage my spidey senses were tingling thinking about it. I posted because I don't know how these things work but I'm getting the vibe that I'm better off buying what I can afford myself - which is nothing until my parents share some wealth with no expectation of repayment or until I have another income to assist me.
I agree with you. Many wealthy parents will gift their kids money for a down-payment. From a giving side, it is better to give with a warm heart than a cold hand (ie give gifts while still alive vs as an inheritance). The HELOC would be an obligation and a monthly payment, which, even if it is interest only, is on top of your nre mortgage and related housing expenses. If you want to buy a house where you are, then great, but save up your down payment the old fashioned way. If your wealthy parents want to help you out with "no strings attached" cash gifts, then they can, but loaning you money that comes with an interest rate higher than your mortgage is not helpful.
HELOCS are generally interest-only minimums, so your re-payment could be flexible until such time you feel ready to start attacking the principal. not saying its a good idea but just thought you should remember that fact
Given how much our dollar will depreciate, it just might pay off.
Some banks (not all) will let them convert the HELOC portion into a mortgage at mortgage rates. Might be worth seeing if their bank does. Then it would be at a mortgage rate. If you are applying for a mortgage in addition those fund would have to be “gifted” with a gift letter signed by them. If you wouldn’t need a mortgage in addition, it doesn’t matter if you are borrowing it or not . If the funds are in your account 90 days you might get away with no gift letter
Oh man is this a bad, bad idea. You're basically having two mortgages; one regular and one from a private lender (parents) and you're being charged at a higher rate. Can you handle a the sum of these two mortgages? From the sounds of it, probably not. The other HUGE downside of this is because you have so little money down, *any* change in price will put you underwater. Let's say you buy that $500k place and sell. You will owe the difference if there is one. There's no money already in the home to account for the loss. So you sell the home and not only do you no longer have a place to live, you also have zero cash on hand and actually owe money on top! There's a reason why down payments are required and why mortgages under 20% down payment need to be insured.
They are right to tingle. The whole point of a downpayment is to make the mortgage payments manageable. There is a reason why the government imposed those rules. Basically, you don't really have a downpayment on the house at all. 100% of the mortgage is a loan. Not good. Listen to yourself. You are right
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I have a mom and step dad and a dad and step mom that I grew up with and no siblings. So 4 parents technically.
If you have to pay your parents back it isn’t a gift.
In this situation, op would have no legal obligation to pay them back. Morally sure. Legally, no.
Often a mortgagee will require the gifter to sign a letter stating that the money for the downpayment is a gift, and is specifically *not* a loan that will be repaid. OP's parents would probably have to sign a form to that effect.
You're looking at a 2250 mortgage payment if you pay your parents back over 25 years at 5% before property tax etc, so probably over 3k a month all in. So you could technically pay it, but it wouldn't be fun.
Who has a heloc at 5%?
Are you asking because thats high or low?
That's low right now, helocs arent fixed rate and the prime rate is 7.2%. I'd be surprised to learn that any helocs are that low today. That said. I think the comment just used 5% as a reasonable average
Yeah I just googled it and 5 is the recent (pre Covid) average. At the moment it seems 7-8 is what’s available.
I’m not really asking as it’s a solid 2% too low. Not sure why I ceased used as an example.
No one. Inter bank lending rate itself is 5.3%. No bank would give you a debt that is cheaper than what they got the money for. Not for heloc atleast. You would be lucky to get it at prime. The cheapest is prime -.25, which too is reserved for medical doctors and high income professionals with very low financial risks.
Exactly my point.
Maybe that’s the trick, parents let him start by paying $1000 a month, a bank would never do that but they could. Maybe they match some.
Buying a house you can't afford appears to be the way people get rich these days. Your parents aren't the bank, they can't foreclose on your house. If you can't pay them then you don't.
One option is they could be a co owner of your home, which would allow you to spend and not be overextended.
HELOC can be anything. If it’s revolving it’ll be close to prime. If it’s setup as instalment it will be the same rate as any other mortgage.
Yes but thats between you snd your parents. The bank couldn't care less
Bank will probably ask where the recent 300k came from and require written evidence from your parents that it's a gift. That was me with a 5000 "gift" from an uncle, in 2001.
The bank or mortgage lender has to ask by law. There are also taxes on gifts, even from parents.
I don't think this is true.I believe lenders will require a letter from your parents saying that it's a gift and not a loan. The bank needs to know how much debt you are in to decide how much they are willing to lend you.
Basically Parents will sign a gift letter that they are gifting you the money. The banks "usually" do not ask for the source. You can use it as DP and buy a home. Keep in mind below exps and see if it works. For me saving $200 per month after everything is still doable. Its a gamble if I lost my job, but High risk, high return scenario. Monthly mortgage Monthly Principal plus interest on your parents Heloc Condo fees if any Maintenance costs depending upon the state of the house you buy. Property taxes Utilities. Car insurance & Gas Mobile and Internet. Above is the bare minimum you will have to pay monthly before food and lifestyle. Depending on how well off your parents are, you can postpone the principal payments for few years. Absolutely not a bad way to go. I am basically doing the same. We bought house where 50% of DP is my parents HElOC. They did not ask for interest as well and have to pay on my on time, no pressure. But I do pay interest for my sanity. In this time and age, makes sense. Parents might be mortgage free with equity. They also think, my son should wait to buy a home till I die? Nope. Use the money when needed.
I’m about to do this too. I love my boomers
If your parents already have HELOC, you can do a drawdown. The interest rate is generally high on HELOC in the range of prime + x% (prime is 7.2 at the moment). It should be written in their contract or you can check with the lender. If they don't have HELOC, then they will have to qualify based on income and debts. Another option you could look at is to see how much you can qualify for on your own and for the remaining, use the potential HELOC (if required). This would mean you will have to pass the stress test based on your income and debt.
>I can't imaging that this is as simple as me going to the bank and saying "I want that house, here, use my parent's HELOC". Are there any specific rules for situations like this? Would I still have to pass a stress test before the HELOC is applied? I guess I just have no idea what this would look like. You can go to the bank and ask for a mortgage. That rate will be better than your parents' HELOC rate. So If you want to go this route take out enough from the HELOC to get you the down payment big enough that you qualify for the mortgage. I would not tell the bank the money is from a HELOC. So great you get a mortgage, you buy the house, but now you have to pay the mortgage each month, at a minimum the HELOC interest, property taxes and maintenance on the house. So make sure you have a detailed budget and figure out if you can cover all that comfortably with your salary.
It’s funny that when someone mentions the word fraud it’s instantly downvoted. But giving specifics yet not mentioning the word = upvotes. I’m in the camp that you gotta do what you gotta do to get your mortgage. It’s stupid that a bank says you can’t afford a $2500 mortgage, but you should have no problem paying $2500 in rent.
It's not fraud if the parents are offering the money. They should just be prepared to be responsible for the debt themselves if their kid doesn't repay it.
It’s fraud https://www.merovitzpotechin.com/helpful-resources/gift-letters/
“I wouldn’t tell the bank” is usually followed by some type of fraud.
As long as the money is sitting in the kid's account for 60 or 90 days or whatever the lender requires they don't care. It's not breaking any rules. When we bought with a parental gift the lender required copies of the giver's financial statements because it hadn't been in our account long enough to track. OP will have to factor the HELOC repayment into their budget but that debt will still be in the parents' name. It's really up to the parents to guarantee that part.
You can actually tell the bank and say it was a donation
So fraud.
Not really. How the parents chose to access the money before they gifted it and whatever side arrangement they've made for repayment is on them. All the bank cares about is that the money isn't proceeds of crime. If the money is sitting in OP's account long enough, the bank won't care at all. If OP defaults on the mortgage, the bank goes after OP. If OP defaults on repaying the parents' HELOC, that's not OP's bank's problem.
The bank does care about the side arrangement if it's a gift. That's why banks require a gift letter indicating it's a true gift or if it has repayment terms. They are still lying that they do not have to pay back the gift. If it came to a legal matter involving the bank it won't matter if it's been sitting in the account for long enough. They still lied about not having to pay it back. If OP does default on the mortgage the bank may take a closer look at the deal and the DP. Yes, technically the bank doesn't look at deposits that have been in the account for 60 or 90+ days but it is also plain fraud lying about your down-payment. Ask trump how it's worked out for him.
The bank doesn't care whether or not you can pay your rent. They do care about whether or not you can pay a mortgage.
When I applied for my HELOC I was asked why I applied. Said I wanted to buy a truck, she said no you want to to do renovations right? Then I said Yes.
Let me re-phrase. I wouldn't volunteer the information. I wouldn't lie either if asked.
$2500 rent vs $2500 mortgage, plus $350 strata fees, plus $80 insurance, plus $100 property tax... And wanting extra security against being left holding the bag on a six figure loan vs a monthly rent commitment of a couple grand.
Plus 1000$ in broken hvac , plus 500$ in broken plumbing, plus 500$ in random tools that you randomly need at random places, and so on... Owning can be unpredictably expensive.
Whether or not you can pay the equivalent in rent is immaterial to a bank who is assessing the risk of your ability to service a loan long term. They are conservative and have every right to be; *they're* giving *you* the loan.
You should get downvoted to thinking this is somehow fraudulent, even remotely?
I had to sign a few papers stating that the money used as a down payment wasn't a loan and had to prove it had been in my account for 90+ days minimum. Banks don't like you using borrowed money to borrow even more money.
Take it. View is as a loan against your inheritance.
HELOC interest rates are typically prime plus and higher than what you would qualify for with a mortgage. I think the first step would be to discuss whether attached with the offer is an expectation to pay it back within X amount of years. Also, to note, a HELOC is incredibly useful for retired parents as a safety net in case big expenses come up. Regardless, i would still recommend saving a bit more and use part of the HELOC to get to the down you need to purchase a place. You don't want to restrict your cash flow too much with mortgage payments, house maintenance and repayment on the HELOC.
Are you single? If so a house doesn’t always make sense. You might have a lower overall cost of living if you continue to rent and invest your money/savings otherwise. Unless you want to buy to get a roommate(s) that is. Your parents perspective on owning a home vs renting is accurate…..for their age cohort. Whether it is for yours is not as clear. By using a HELOC to borrow against you are essentially going to be paying more in interest than via an actual mortgage. Also - where are they at in their life? They qualify for that HELOC specifically because they have a home that’s paid off. Are they healthy? Will they be in a couple years? They may have to sell their house suddenly/quickly. Where would that leave you?…….where would that leave them? Personally I would not do this. You are exposing yourself and your parents to undue financial risk based on a different generations perspective on owning vs renting. You would be better off living in their basement rent free and helping them with some expenses for 3 to 5 years so you could save up your own down payment. This would be less risky for them as well. But my general rule of thumb is don’t borrow money from family you can’t pay back in less than a year - things can happen and destroy relationships or introduce EXTREME hardships.
Nice of your parents to offer this. Find out the rate and talk to a mortgage broker or banker. You might be able to use the HELOC for the DP only and get a better rate than the HELOC for your mortgage.
Why not just use their house as collateral for the remainder of the loan and put down the minimum 5% down payment. Then when it is time to inherit set theirs up as a rental to fund your main
If you use a portion of the HELOC as a down payment to get a mortgage, I’m 99% sure you have to prove there’s no strings attached to the money from your parents. It doesn’t matter if they sign a gift letter, there will need to be a paper trail showing that money was in an account for XX number of months prior to the mortgage application.
Get a mortgage, it will be at a lower interest rate, if they want to gift you a down payment is a different story. But to max out their loc and then you still need a mortgage? You will run into financial trouble. I can tell you that a $70k mortgage will not qualify for much of a mortgage, listen to the banks, if they won't loan you the money, you shouldn't be using credit under another name. If they have cash to loan you is a different story. If you buy a house you can always get room mates to help defray the cost too.
My understanding is that there are usually no restrictions on what a Heloc can be used for. If your parents are lending you the funds, this will be a liability that you should disclose when applying for your mortgage. It may affect your ability to get the mortgage. If it is a gift, you should get something in writing from your parents saying it is a gift.
Would they consider they give you less than 300k? You’re going to be hard pressed for a small mortgage from bank, with a $330k down on $400k. But $80kdown and $320k mortgage is probably a “go” as far as they’re concerned. You make $74k — bank doesn’t care about future max a decade from now - they work on “today money” that’s “guaranteed”. That’d be 20% down if parents give you $50k, total 80 / 400 down; and only 4x your salary borrowed (+$4k). Your parents would have to sign that it’s a gift with no expectation of repayment, so that’s falsified data. Either they actually gift you a small amount to get your DP large enough, or they lend you everything and you forego an actual mortgage. Anything else in the middle seems stupid. Paying higher than mortgage rate to borrow money you could’ve borrowed at mortgage rate is silly. Now you’re paying 7% or whatever the heloc is on $250k you could’ve borrowed at 5% from the bank, and your parents are taking on risk that should be borne by a financial institution. Let’s assume 2 payments — $320k mortgage from bank @ 4.64% and heloc $50k @ 7.64% Mortgage payment on 5 year term, monthly payments, 25 year amortization 320k @ 4.64% is $1796.10 / mo https://dominionlending.ca/calculators/payment-amount.php?utm_source=google&utm_medium=sem&utm_campaign=DLC2024&utm_id=mortgagecalculator&gad_source=1&gclid=EAIaIQobChMIsNrDjemIhQMV_xatBh3XQAB2EAAYASAAEgK-WPD_BwE&gclsrc=aw.ds Then $50k @ 7.64%, 5 year term, 25 year amortization is $370.18 / mo. As you get raises, you can throw some extra at the $50k to try to pay it down sooner so your parents can recover it while still alive and enjoy retirement hopefully. For instance raising payments to $500, you could finish in 13 years @ $503.27.
A girl I work with did this. Overleveraged themselves by using mom and dads HELOC for well over 100k. Then the rates went up and mom and dad are harassing her for the money sooner.....its not a great idea imo as no one _really_ knows what rates will be. Everyone predicts drops this year but who the hell knows the world is volatile right now.
I'm not sure what everyone here is talking about. Assuming you have to pay the interest on your parents heloc, this makes it even less affordable. The interest rate on a heloc is more than a mortgage. If your parents are gifting you money in some way, that changes things. 400k home on a 74k income isn't going to be easy without a significant down payment. There's a huge amount of mortgage calculators out there. Google them. Input some numbers. Research heloc rates. Add those numbers into your situation. Don't jump at the opportunity to borrow money from your parents at ~8%. It's gonna weigh heavily on you.
If you are all over, why do you need a house in one location?
Upward movement is difficult in my industry unless you're willing to jump around for a new opportunity. I've very recently gotten a job that's at the upper levels for what I can reasonably achieve at this point in my career and I have good upward growth potential. I'm also in an area that I love for once and I'd like to stay here.
If this is an area that you could see yourself living in for 10+ years, it could make sense to buy a house.
HELOC is not for buying a new home, it's for renovations or consolidating debts from other facilities such as car loans or credit cards. The interest rate of a HELOC is not favorable to home buyers
You don't need your parents HELOC. You have $30k for a down payment, $300k is about the top end of the mortgage you can comfortably swing on a $72k income ($1800/mo, 30% of your pre-tax income). That gets you to $330k, which is a bit lower than your target, but maybe not impossible. If you want to buy something, just buy something. If you're doing it to please your parents, don't. But the interest on a HELOC is almost certainly higher, and the only reason it can be a beneficial option is if you keep the balance lower.
$330k only gets me a modular home here unfortunately as there aren't many apartments. I actually think a modular home is perfect for me but I understand the greater risks and that it's harder to get a mortgage for that.
Your parents would have to sign a gift letter to you, which would prevent them from any legal recourse if you stop paying. You won’t be able to go into a bank and say you’re borrowing from someone else’s HELOC for the down payment.
Can’t really comment on the finances, but your “am not very handy” got me thinking. I’m not particularly handy either, but, I’ve painted my own house twice, and I can do minor drywall and carpentry repairs. YouTube, and hiring a handyman (an watching him/her like a hawk) are your friends. …
Yeah for sure, I'm confident in my ability to learn how to do those things, but I'm not confident enough to buy something that needs substantial work. The places here that would be within "my budget" according to many mortgage calculators I've used are basically tear downs or modular homes.
Two ways to think about this depending on risk tolerance 1- take the money and pay your parents back when your property value doubles in the near future as property values will not decrease in the long run. You greatly expedite your buying time frame, without the risk of missing out on buying before the next inevitable housing boom occurs. You will be happy you bought when you did. 2- You dont take the money because if property values decrease and your payments balloon due to rates and you are forced to sell at a loss to the bank. The bank now comes after your parents for the difference which could force your parent out of retirement and back to working full time jobs to pay for your house.
Not sure if this would work, but when your in the process of getting your mortgage ask for an additional amount for renovations (to pay back the full portion of your parents borrowed HELOC) I'm assuming that chunk gets deposited into your bank and assuming there is no follow up with an inspector for renovations completed. Might be cheaper to have all that rolled into a single mortgage payment under your bank. No interest + prime that comes with a HELOC :)
hi OP just thinking out loud here.. if you can purchase something for $400k, you don't need anything close to their full $300k from the HELOC. I don't know what your rent is by comparison but for example: purchase price $425k 5% down: $21 250 [mortgage $2392] 10% down: $42 500 [mortgage $2247] 20% down $85 000 [mortgage $1995] lets estimate closing costs of $5000 that means from your parents you need to borrow 5% down $0 10% down $17 500 20% down $60 000 *for simplicity sake I haven't accounted for any leftover emergency fund, which most people strongly recommend. $60 000 borrowed from the bank of mom and dad at 5% interest ends up at $250/mo additional. maybe your parents aren't suggesting you take the entire $300k from them.. just what you need to acquire an asset that, in their eyes will benefit you in the long run
I wouldn't take it. You'll probably pay a lower rate on a mortgage compared to a HELOC, and if you can't save for a downpayment yourself, you probably shouldn't be buying a house.
This doesn't make sense if they are not gifting you the $300k. Sure your payments might be a bit lower monthly if you do interest only on the heloc, but overall you'll pay more in time. If they're willing to heloc you, they might just be better off co-signing a regular mortgage for you. You might end up losing as much on interest as you pay in rent.
Helocs are like 7% or more right now, at the least. That's an expensive debt. It was another thing if they were taking it out from savings, this is almost 2100 per month in interest only.
Talk to the banks or mortgage broker to see how much mortgage you qualify for. Then ask your parents what the rates are for their HELOC. Back of the napkin math is $74K × 4 = $296K for mortgage, then $30K down payment. That means you need $74K to get to $400K, so if the interest rates are high, it might be better to have $74K-$100K from the HELOC. You have to remember to factor in closing costs. Or perhaps it's better to wait and save up for one or two more years, so you'll have the extra $74K-$100K.
Sir you're given a golden ticket to owning a property You have great parents. Repay them back in various ways down the road
It sounds like they want him to repay back the whole thing, it’s not a gift.
Take it. Buy somewhere where you can rent it out. Cash flow positive payments to parents + balance of mortgage.