Author Topic: Home purchase question/buying with parent?  (Read 6654 times)

cavalier

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Home purchase question/buying with parent?
« on: March 03, 2014, 05:05:45 PM »
Hi guys,

I have a interesting scenario/question I'd like to ask all of you.  I am currently interested in purchasing a condo. First a little background.

I will be turning 28 shortly.
2012 W2 wages: $75k
2013 W2 wages: $81k

I also make about 11k a year in "cash" that I do not report.

Condo prices is $257k, property taxes are $6800 (I live in north NJ property taxes are super high), maintenance is $488/month on top of that.

I have about 45k that I could put towards a down payment currently.

I also have a car payment of $500/month...not sure if it is worth selling (would break even) because I would then have to dip into my down payment money to pay cash for a new used car.

My question is, it seems to me that I have enough money a month to afford this payment, however, because it don't report 100% of my income I probably wouldn't qualify for a mortgage this size.

I was considering asking my parents to buy the house with me in order to qualify for the loan and then pay for it all myself. I am 100% trusting of my parents so I'm not worried about running into family "issues". Also, I would get a roommate and have them pay rent.

My questions are

1) is this possible?
2) concerns I should be having?
3) how would this be structured so that the property is really mine?
4) what am I missing?

soccerluvof4

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Re: Home purchase question/buying with parent?
« Reply #1 on: March 04, 2014, 04:14:36 AM »
1) its possible but I would look for a less expensive alternative
2) roomates and doing a deal with your parents. If you dont have a roomate can you still afford on your own. Do you really want to be tied in anyway owing your parents $
3) Your parents simply become a private loan lender but keep seperate of Mortgage. In most states your not allowed to borrow money for the down payment then borrow for the mortgage. The would need to just give you the money and keep loan in house. This way you could show you have the money for down payment. Or you would have to buy the house together and could pay there portion off monthly then loan gets turned soley to your name.
4) I wouldnt do it unless the place was a steal and you are buying instant equity. Buy something you can afford or wait till you can. You make a good living so dont get your parents involved be patient.

nereo

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Re: Home purchase question/buying with parent?
« Reply #2 on: March 04, 2014, 06:11:02 AM »

2012 W2 wages: $75k
2013 W2 wages: $81k

I also make about 11k a year in "cash" that I do not report.

Condo prices is $257k, property taxes are $6800 (I live in north NJ property taxes are super high), maintenance is $488/month on top of that.

I have about 45k that I could put towards a down payment currently.

I also have a car payment of $500/month...

1) is this possible?
2) concerns I should be having?
3) how would this be structured so that the property is really mine?
4) what am I missing?

1) possible, but based on the limited info you gave us I'd be wary
2) what rate would you get?  what's the rate on your car loan?  That seems like a lot of debt to me ($500/mo car + $488 maintenence + $566/mo property + ~$1080/mo mortage (est. 30yr term at 4% w/0.35 insurance policy).
Your estimated monthly payments would be something like $2635 for a home and a car.
3) previously answered
4) you are missing calculations about why this could ever be a good idea.  How much equity would you have in the place after 1 year, 5 years, etc.  How much could you pull in from a renter (assume you won't have it rented 100% of the time, and include damages).
5) I just have to ask, why do you have $11k cash unreported?  That's a substantial chunk of change.

Phil_Moore

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Re: Home purchase question/buying with parent?
« Reply #3 on: March 04, 2014, 06:16:27 AM »
What are rental prices like? I'm not sure I would have wanted all that complication, headache and expense in my 20s tying me down to one place, lovely as North Jersey sounds.

I'm intrigued by the use of inverted commas in "cash" as being unreported. What are you being paid in? Pringles?Cocaine?  I'm not in the US but it sounds like the kind of thing that would get you in trouble with the taxman.

Fuzz

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Re: Home purchase question/buying with parent?
« Reply #4 on: March 04, 2014, 08:39:29 AM »
I'm not seeing the *why* you should buy property. You're 27. Do you have an SO? Kids? Like the school district? A well-paying government job that is (1) immovable and (2) permanent (i.e. police officer with 11K cash income??)?

Spork

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Re: Home purchase question/buying with parent?
« Reply #5 on: March 04, 2014, 09:14:55 AM »

I am sure there are exceptions to this but: For the most part I've seen that banks are more than willing to qualify you for A WHOLE LOT MORE than you can comfortably pay per month.  (Comfortably, being the key word here... They're willing to qualify you to live paycheck-to-paycheck.)

If you can't qualify for the loan: I'm going to guess this costs more than you can afford.  My tendency is to VASTLY UNDERSHOOT what the banks have qualified me for (and I'd do that even if I had a get-me-audited-really-fast cash side business.)

If I were you I'd talk to a bank and get qualified for a loan amount first.  (This is actually a decent bargaining chip for closing on a property quickly.)  And then I'd find something for significantly less than that amount.  But: that's just me.

skunkfunk

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Re: Home purchase question/buying with parent?
« Reply #6 on: March 04, 2014, 10:46:52 AM »

I am sure there are exceptions to this but: For the most part I've seen that banks are more than willing to qualify you for A WHOLE LOT MORE than you can comfortably pay per month.  (Comfortably, being the key word here... They're willing to qualify you to live paycheck-to-paycheck.)

If you can't qualify for the loan: I'm going to guess this costs more than you can afford.  My tendency is to VASTLY UNDERSHOOT what the banks have qualified me for (and I'd do that even if I had a get-me-audited-really-fast cash side business.)

If I were you I'd talk to a bank and get qualified for a loan amount first.  (This is actually a decent bargaining chip for closing on a property quickly.)  And then I'd find something for significantly less than that amount.  But: that's just me.

I qualified for a loan with a payment higher than my net monthly income.

???

cavalier

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Re: Home purchase question/buying with parent?
« Reply #7 on: March 04, 2014, 10:56:54 AM »
Hi guys,

Sorry I put cash in " "s...I literally get paid in cash about $200 a week for a side gig (nothing illegal other than that I don't report the income).   

I do have a SO who would be my "renter".  If we got married then it's no different than if she continued paying rent.

I would likely sell my car and buy a less expensive one (in cash) before doing this.

I am a complete neophyte so I have no clue what I would qualify for. I guess I should go to a bank and find out.



warfreak2

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Re: Home purchase question/buying with parent?
« Reply #8 on: March 04, 2014, 11:14:09 AM »
Don't be a dick; report your income, and pay tax on it as required by law. There isn't any way you can make $200 per week which doesn't depend in some way on infrastructure paid for by taxes - at the very least, if somebody stole that money from you, you would expect the police to do something about it.

MustachianAccountant

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Re: Home purchase question/buying with parent?
« Reply #9 on: March 04, 2014, 12:14:30 PM »
Don't be a dick; report your income, and pay tax on it as required by law. There isn't any way you can make $200 per week which doesn't depend in some way on infrastructure paid for by taxes - at the very least, if somebody stole that money from you, you would expect the police to do something about it.

^ This. Also, it's kind of inadvisable to admit you're committing tax fraud online. Possibility of jail time and all that. Put on your big boy (girl?) pants, claim the income, and pay your taxes.
If you're not sure how, there are plenty of people here that will point you in the right direction.

Spork

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Re: Home purchase question/buying with parent?
« Reply #10 on: March 04, 2014, 12:53:34 PM »
I actually look at it from a different standpoint and still come to the same conclusion.  I'm not a big fan of most taxation... but in no way do I ever want to cross the IRS.  It is a very good plan to play along and play nicely.  They can make life pretty miserable if you don't.

Sweet Betsy

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Re: Home purchase question/buying with parent?
« Reply #11 on: March 04, 2014, 01:01:09 PM »
If you were your parents asking if they should help you buy a house...I'd tell them no way.  If you can't qualify for a mortgage on your income you don't have any business buying a house. Give yourself some time and you'll be able to buy a house soon under your own devices rather than relying on someone else. 

Also, declare all your income.  It's easy.  Just fill out schedule C (or C-EZ). 


MsSindy

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Re: Home purchase question/buying with parent?
« Reply #12 on: March 04, 2014, 02:01:08 PM »
I'm sorry, I'm still gagging on $488/month for HOA!  This is why I will never own a condo again.  No matter how Mustachian you become, this will never go away, and it will only increase (and sometimes they put "special assessments" on top of it).

I'll second what Fuzz said, why do you want to own a home?  What's the hurry?  and why a Condo (I'm sure it's probably what's in your price range, but I'd think really hard about being tied into a deal with a $488/mo built in fee that I had no control over).

cavalier

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Re: Home purchase question/buying with parent?
« Reply #13 on: March 04, 2014, 03:01:35 PM »
I'm sorry, I'm still gagging on $488/month for HOA!  This is why I will never own a condo again.  No matter how Mustachian you become, this will never go away, and it will only increase (and sometimes they put "special assessments" on top of it).

I'll second what Fuzz said, why do you want to own a home?  What's the hurry?  and why a Condo (I'm sure it's probably what's in your price range, but I'd think really hard about being tied into a deal with a $488/mo built in fee that I had no control over).


Yes I am aware of the high HOA fee...seems to be the going rate in these parts...I've looked.

Buying a home now at still low interest rates is attractive to me.  I know that in it of itself is not a reason to purchase a home.  And I know renting isn't throwing away money.  But I look at it this way: I can't afford a real house where I live right now.  I'm looking at minimum $350k+ for a decent house in a decent neighborhood and taxes that could be 10-15k.  So I can get a condo with taxes and HOA of 12k a year but a buy in cost of 250k.  Eventually as I make more money I will be able to pay it off somewhat quickly and then when I'm ready to purchase a house I can actually rent this instead of selling it.  I don't see myself owning two actual houses and renting one out as the carrying costs are too high in these parts.

Also I just want to clarify I HAVE NOT been rejected for a loan or anything.  I assumed I wouldn't qualify as I figured you still need 20% down + 3 month buffer, but from what I've been reading, you can get a conventional mortgage (albiet with PMI) with 10% down.


KingCoin

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Re: Home purchase question/buying with parent?
« Reply #14 on: March 04, 2014, 03:09:59 PM »
What are rental prices like?

This is the most important variable. What would it cost you to rent an equivalent $250k condo?

cavalier

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Re: Home purchase question/buying with parent?
« Reply #15 on: March 04, 2014, 03:17:29 PM »
What are rental prices like?

This is the most important variable. What would it cost you to rent an equivalent $250k condo?

at least 2k/month.  it is a 2bedroom 2 bathroom with garage parking.

KingCoin

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Re: Home purchase question/buying with parent?
« Reply #16 on: March 04, 2014, 03:30:22 PM »
at least 2k/month.  it is a 2bedroom 2 bathroom with garage parking.

Any reason you need such a big place? The mustachian move would to rent a studio or 1bed and stockpile cash like crazy.

cavalier

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Re: Home purchase question/buying with parent?
« Reply #17 on: March 04, 2014, 03:47:03 PM »
What are rental prices like?

This is the most important variable. What would it cost you to rent an equivalent $250k condo?

at least 2k/month.  it is a 2bedroom 2 bathroom with garage parking.

That's about what it would cost for our 2BR2BA if we added on a parking spot, which we don't rent, because we live in Queens, not Jersey. Do you work in Manhattan? Have you considered moving into the city and ditching the car and NJ Transit passes? When I ran the numbers, you often came out cheaper living in the outer boroughs than in the convenient suburbs.

I'm in sales and travel, by car, a lot.  However, my SO works in Jersey so where I would live is somewhat dependent on where she works. 

Any reason you need such a big place? The mustachian move would to rent a studio or 1bed and stockpile cash like crazy.

If I were to buy it would be with the intent to stay for a while, and if I had a family, I wouldn't be forced to leave right away.

I do currently rent and save about 50% of my income.  The issue with that reasoning, and in general, my issue with a lot of things on this website, is that if you're only stockpiling cash and building investments...you NEVER get anything and there never seems to be a strong enough reason to purchase anything. 

Here is an example:

"Don't keep a lot of cash because you need your money in investments earning money."
"You can't sell investments to purchase a home because you need those investments to build so you can FI/RE."

Well if you can't keep cash and you can't sell investments just how are you supposed to buy a house?

By the time I max my 401k, max my Roth IRA, pay taxes, living expenses, saving in a taxable account, where do you get the money to do anything unless you make a significant (significantly more than me) amount of money.

I just don't understand at what point a true mustachian can purchase a home.  I don't get it.
« Last Edit: March 04, 2014, 03:48:58 PM by cavalier »

KingCoin

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Re: Home purchase question/buying with parent?
« Reply #18 on: March 04, 2014, 03:57:25 PM »
If I were to buy it would be with the intent to stay for a while, and if I had a family, I wouldn't be forced to leave right away.

I do currently rent and save about 50% of my income.  The issue with that reasoning, and in general, my issue with a lot of things on this website, is that if you're only stockpiling cash and building investments...you NEVER get anything and there never seems to be a strong enough reason to purchase anything. 

Here is an example:

"Don't keep a lot of cash because you need your money in investments earning money."
"You can't sell investments to purchase a home because you need those investments to build so you can FI/RE."

Well if you can't keep cash and you can't sell investments just how are you supposed to buy a house?

By the time I max my 401k, max my Roth IRA, pay taxes, living expenses, saving in a taxable account, where do you get the money to do anything unless you make a significant (significantly more than me) amount of money.

I just don't understand at what point a true mustachian can purchase a home.  I don't get it.

Well, the idea is you spend 50% or less on living and 50% on saving. Housing comes down on the "living" side. You calculate the opportunity cost on the capital tied up on the house as part of your living expense.

A "true mustachian" may in fact never purchase a house. Or they might purchase 10 houses. It's all a question of how it fits into the bigger financial picture and your personal values and goals. If you can't make a compelling argument that buying a condo makes sense, then don't do it. Stockpile extra cash in the meantime, and then when you do have that kid, and do need the extra space, or the real estate markets is in the doldrums, you can whip out your fat wad of cash and buy the place of your choosing. No need to ask for the parents help.

ShortInSeattle

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Re: Home purchase question/buying with parent?
« Reply #19 on: March 04, 2014, 04:27:23 PM »
My questions are

1) is this possible?
2) concerns I should be having?
3) how would this be structured so that the property is really mine?
4) what am I missing?

1) Yes, it sounds possible.

2) Concerns:
 
- Loan + HOA + Taxes + Car Loan = Very High Debt Load.

- I think cosigning is always a bad idea. It puts your parents at risk if you have something bad happen, and vice versa.  Cosigning nightmares are not always about irresponsibility. Job losses, health care expenses,  lawsuits.  There are so many ways you (or they) could get F*&ked. If you can't get a loan clean on your own record, don't do it.
 
- Tax Situation = Very risky and foolish IMO.  Pay your taxes and put your law breaking years behind you.

3. I don't recommend you get a cosigner, period.

4. What are you missing?

- Perhaps just that this sounds like a move that may make FIRE a bit harder.  Debt does that.  I think you just need to weigh that tradeoff very carefully in your mind.  For example, I have a "fancypants" condo that is going to require I work an extra 2-3 years to support.  I'm OK with that, but I think you should do the math on the impact of this purchase if FIRE is truly a goal. 

How important is this condo to you? How does it impact your FIRE goals compared to renting a cheaper place? Is the tradeoff worth it?

Good luck.

Daleth

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Re: Home purchase question/buying with parent?
« Reply #20 on: March 04, 2014, 07:59:45 PM »
Lenders also generally won't let someone co-sign a mortgage unless their name is on the deed. So your parents will be co-owners--which means if they get in trouble their creditors can come looking to your condo for payment, and if they die their heirs (do you have siblings?) inherit their share.

Only way I can see to avoid this is to pay a lawyer to draw up docs specifying that they only own a nominal amount, like 1% (if this is possible for co-mortgagors in NJ) and that their share goes to you if they die. Careful, don't draw up the deed as joint tenants with rights of survivorship: that would mean that if you died, your parents inherit your share--probably not what you want if you're thinking of sharing this place with your SO/future spouse.

Long story short, you MUST consult an NJ real estate lawyer before getting into such a deal with your parents.

Phil_Moore

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Re: Home purchase question/buying with parent?
« Reply #21 on: March 05, 2014, 10:40:00 AM »
What are rental prices like?

This is the most important variable. What would it cost you to rent an equivalent $250k condo?

at least 2k/month.  it is a 2bedroom 2 bathroom with garage parking.

Honestly, assuming your rent is considerably less than that now, I would just stay where you are and keep racking up the 50%+ savings while increasing your income as you are doing (the legal side I mean).  Then when you have a decent deposit you can buy a house you really want, that meets your needs, in a location chosen for reasons beyond "my gf works there" and one you can afford easily without family intervention.

That's just my opinion though, I'm by no means an expert. For example I don't fully understand what HOAs are, but it roughly equals what I was paying in rent in 2011 just for that, so I'm hoping it includes unlimited lap-dances and such and such.