A Pew Research study found that 22% of adults either changed their residence or know someone who did due to the COVID-19 pandemic. More than 60% of those who moved relocated to a family member’s home. If your empty nest is feeling a bit less empty, you’re not alone. Six months into the pandemic, people are itching for more space, whether it’s a home outside the city or just reclaiming the space they had pre-pandemic.
Want your kids out of the house sooner? Here’s what you need to know about down payment assistance
Florida is the number one state people are flocking to during the pandemic, and with Miami already ranking as the city with the second-highest rate of adult children living with their parents, antsy adults may be looking to make sure their kid’s stay is a temporary reprieve, not a permanent relocation. One of the biggest obstacles to moving out is coming up with a down payment on a new home — here’s how parents can help.
Point them toward low down payment options
Federal Housing Administration (FHA) loans have low down payment and credit score requirements. Borrowers with a credit score of 580 or higher can make a 3.5% down payment, while borrowers with credit scores of 500 to 579 can make a 10% down payment. The flexible requirements make them a popular choice for many first-time homebuyers.
These programs are second mortgages. That means these mortgages are also secured by the home being purchased, and the home would have two mortgages on it. The first mortgage buys the home and the second funds the down payment assistance.
Florida also offers down payment assistance programs, including:
- The Florida Assist (FL Assist): The FL Assist Second Mortgage Program offers up to $7,500 as a 0% deferred second mortgage that can be used to cover a down payment. A deferred mortgage doesn’t need to be repaid until the home is sold or refinanced. It must be used in conjunction with a Florida Housing mortgage.
- The Florida Homeownership Loan Program (FL HLP) Second Mortgage: This program offers up to $10,000 as a 15-year, 3% second mortgage. Like the FL Assist program, it can only be used with a Florida Housing mortgage.
- FL HFA Preferred or Advantage 3%, 4%, 5% PLUS Conventional Loan Program: First-time homebuyers who qualify for the loan also qualify for a second mortgage of 3% to 5% of the loan amount. The second mortgage is forgiven after five years. This program has income limits that vary by county. For example, the income limit is $127,960 for a 2-person household in Miami-Dade County.
Gift vs. Loan
You can also gift or loan the money for a down payment. Gifts funds have no expectation of repayment, while loans do. Down payment loans also need to be secured by an asset, like a car or real estate, for the lender to accept it.
With both options, the funds need to be documented. A loan will be included in the borrower’s debt-to-income (DTI) ratio, which is the relationship between a borrower’s monthly debt payments and their income. Lenders prefer a ratio of 43% or less.
Which option is better? That depends on your child’s income and debts, your finances and your personal preferences.
If your child’s income is too low or their credit is too shaky to secure a loan on their own, consider cosigning. However, this option comes with risks and implications for your own credit, according to the Federal Trade Commission (FTC).
If your child stops making payments on the loan, you’re fully responsible. The loan will also factor into whether you’ll qualify for future credit. In other words, once you sign, it’s your loan as much as your child’s. If your child has a history of keeping up with financial obligations, it could be a safe move. If not, you may want to put up with the crowding while they save.
Outline terms and expectations
Regardless of which option you choose, clear communication around terms and expectations helps minimize conflict.
- If you’re gifting funds, clarify how much and that those funds are only to be used for a down payment.
- If you’re offering a loan, set up a payment schedule you’re both comfortable with and discuss what happens if they can’t continue loan payments.
- If you’re cosigning, discuss your expectations around keeping up with payments and communicating with you if they’re struggling. Discuss a timetable for when they’ll refinance and take you off the mortgage.
- If they’re applying for loan programs, discuss when the applications will be complete and their timetable for home shopping.
Having a plan in place can make your present circumstances a bit more bearable. And if it’s not, there’s always virtual family counseling.