Take out a home loan for my parents?

Unless you got the B@LLS to evict them when or if they dont pay it's a really bad idea.

parkside wrote:

This is not about giving a loan to a friend, or even a brother or sister. This is your PARENTS. If you trust them, and you have an opportunity to help them out, do so. They raised you and paid for all of your crap!

(I would think about what exactly the potential harm would be if something happened and suddenly they couldn't pay. Would it royally screw you? If so, then you may not be a position to do so. If something can be worked out - I'd do it. I'm more in a position of my parents helping me than me helping them, so I I think it would be great to do something for your parents)

The ONLY way this is a good idea is if you have the money to buy them a house straight up and immediately sign it over to them. You holding the mortgage acting as land lord will be a disaster.

Who is responsible when the place needs a new roof, or AC unit? What about major plumbing projects?

Also when you decide to buy a home and start a family this will kill your debt ratio.

YoungGuy1 wrote:They could run into some issues with getting a loan due to the past though.

This screams don't do it. If they've had money issues in the past why do you suddenly trust them now? Also, they've been living in an apartment for 8 years and can't save up a 20% downpayment? Don't do it.

Besides the obvious credit risk mentioned above, it's important to consider what others have said about non-obvious costs that you seem to be glossing over. Owning a home is expensive. It's not a simple you sign the papers, they pay rent, you build equity type transaction. What about property taxes, homeowners insurance etc? Also, houses are expensive and stuff can and will break. Who will pay for that stuff (water heater, HVAC, plumbing, appliances breaking etc)?

YoungGuy1 wrote:

They could run into some issues with getting a loan due to the past though.

I am not sure why this EXTREMELY IMPORTANT statement is being ignored by everyone except for the guy above me.

The easiest way to do it is to buy the house as an investment property. The lending and insurance will be very different from owner occupied, but if your credit is stellar and you have good income, banks will lend to you at very good rates. If you have your parents on the loan as co-buyers, you will bring their crappy credit into the mix and will have to take the house through your parents probate, which could be subject to your parent's creditors.

As for whether you should or shouldn't do it, financially speaking, if the house is in an area that is seeing good appreciation/redevelopment, go for it. If the house is in a generic suburb with aging housing stock and little appreciation, think twice. Everyone I know who owns rentals made out like a bandit in the former situation and lost their shirt in the latter. Remember that real estate is very illiquid, especially in an area where no one wants to buy.

As for the family issue, as long as you can get by without having your parents pay the rent, go for it. Just remember that if your parents fall on really hard times, they are going to end up moving in with you. So, at least this arrangement would keep them out of your house, which is definitely worth something.

I can speak to a lot of these issues as someone who is a landlord.

I bought a house with my wife, lived there a bit and moved (rented).

I kept the house and rented it out.

Two years later bought another house to live in.

Have high debt and virtually no equity on both houses.

Was able to get the loans even in this tough environmnet and make the payments.

I did have to replace the A/C in the first house house along with other repairs and had it vacant a few months.

This basically meant credit card debt.

But in 15 years I could get net $100K out of the house that would wipe out any debts and I will have $200K + coming a number of years after that.

High risk early, good rewards years down the road.

So the first question is whether you want to be a landlord or not.

Play it safe and gain nothing. Take risks and responsibilities and have a nice gain if you have patience.

The next question is do you do this with your parents.

Actually, my mother wanted to live in my rental but I knew she couldn't make the payments and I couldn't make up the difference in cash myself. She had to find a cheaper situation. Very tough for me to deal with that and my wife.

The OP may have a different situation. Maybe his parents are OK with income but had an event in their past that ruined their credit.

That's just a personal decision.

You can't look at an investment home as a vehicle that you have gains or even break even right away.

You budget to have losses for several years and then turn the corner at some point, where you then will have gains that keep building.

This may be minor in the scheme of things, but your personal income taxes are going to be quite a bit more complicated however you might do this.

If you want to help your parents and they need money and you have money, that's great. I would just give them some money, no strings attached. I wouldn't buy a house and rent it to them or buy a house with them.

sone older guy here wrote:

This may be minor in the scheme of things, but your personal income taxes are going to be quite a bit more complicated however you might do this.

If you want to help your parents and they need money and you have money, that's great. I would just give them some money, no strings attached. I wouldn't buy a house and rent it to them or buy a house with them.

Best advice yet.

EZ10Miler wrote:

sone older guy here wrote:

This may be minor in the scheme of things, but your personal income taxes are going to be quite a bit more complicated however you might do this.

If you want to help your parents and they need money and you have money, that's great. I would just give them some money, no strings attached. I wouldn't buy a house and rent it to them or buy a house with them.

Best advice yet.

Absolutely.

Ever heard the old line? What do you call a loan to a family member? A gift.

So make the gift status official up front. Any time you deal with loans for family (either making the loan yourself, taking it out for them, cosigning, whatever), you're asking for trouble. Awkward moments at Thanksgiving dinner will be the least of your concerns.

sone older guy here wrote:

This may be minor in the scheme of things, but your personal income taxes are going to be quite a bit more complicated however you might do this.

If you want to help your parents and they need money and you have money, that's great. I would just give them some money, no strings attached. I wouldn't buy a house and rent it to them or buy a house with them.

Yes, income taxes will get more complicated.

For example, Warren Buffet's tax situation is very complicated and a homeless person's tax situation is not complicated at all.

Just giving your parents some money doesn't put them in a house and does not build equity for anyone.

I agree that doing business with friends or family usually is not a good idea.

But it isn't always bad.

"Just giving your parents some money doesn't put them in a house and does not build equity for anyone.

I agree that doing business with friends or family usually is not a good idea.

But it isn't always bad.[/quote]

yeah but these are people that have spent a lifetime making poor financial decisions. Trying to be their landlord means at some point you eat it, or face kicking your parents out of your rental. No "equity" is worth that.

Thanks for all the replies. I do see alot of people saying this isn't a good idea. I need to be clear on a few things. First, my parents made a couple financial mistake time ago that will create issues. They are responsible and would have no problem paying each month. The price of home will not be so great that this is a worry. That's not really my concern, but I understand why everyone brought it up. They are in they're 50's and want out of an apartment building..more freedom, a dog, more space for family visiting, etc. The idea that I had thought was to purchase a home and rent it to them. This would give them what they want and in the long term have a house paid off in my name. Not having to deal with random tenants and having a long steady source for the mortgage payment is what seems great.As much as I do want to make them happy, I won't do this if it puts me in future financial burden. That is why I have been looking for advice and opinions. My first thoughts were this was a no brainer opportunity to make them happy and be a good investment choice. Getting some opinions obviously shows there are pros and cons. I'm going to discuss options with a legal friend and see what he has to say. If anyone else has done this or have advice, my ears are open.

Sorry. Used the wrong OP name above!

I am usually conservative and cautious about making loans to family members for the reasons brought up by many. listening to you, though, it sounds like you trust your parents, have confidence in their ability to pay, and will not be overextending yourself financially.

I think you should consider doing it. I would suggest that you set up everything officially & legally, as if you would for any landlord/tenant situation. I would also outline/document in the paperwork what happens if things go poorly (missed payments, financial difficulties, leaky roof, desired but "unnecessary" improvements, etc..), so everybody knows the expectations up front. Hopefully it never comes to missed payments/possible eviction, but it's better to set expectations and clearly communicate to prevent misunderstandings and unnecessary hard feelings. If it ever comes to that, you always have the option (keep this option to yourself) of being more flexible than the lease outlines, forgiving the debt, etc, but that will be on your terms and you won't get screwed.

It sounds like a huge potential win-win. They get into a house, can host family stuff, enjoy their pet, save some money over rent. You get to help them attain those things (nice to be able to help parents), and build some equity and possibly make some money along the way as a landlord.

I would also suggest you read up on being a landlord, and all the expenses to budget into rent. Make sure you don't underprice the rent. Make it the same as you'd charge any other tenant. If you're cash flow positive, and covering all your maintenance/etc after several years, you always have the option of returning/gifting the surplus in some way. But, if you price it too low, you could set yourself up for a best case: slow bleed for the next 15-30 years, and worst case: much worse if something unexpected comes up.

Please keep us posted with what you find out from your legal friend, and what you eventually decide.

Good luck!

NO.

Either obtain the loan yourself and let them live in the home, OR, give them the money to qualify for the loan to buy the house.

But don't co-sign or do a joint purchase.

Believe it or not my parents did the same with my 1st home purchase and I do the same with my kids and relatives.

Also never co-sign for a car loan or home loan or any loan for that matter on behalf of your kids, parents, co-workers, friends, and business partners no matter how close they are.

WHY? You don't want to deal with the legal mess when people cannot pay, get in an accident, leir, or liability situation, nor when God Forbid they die and people you never met sue to get an interest in their assets. I.E. if your name is on the deed you WILL be named in the lawsuit.

If the amount they will need to pay you is less than their rent, then they can rent a house on their own.

Billllly1 wrote:

First, my parents made a couple financial mistake time ago that will create issues. They are responsible and would have no problem paying each month.

There is an inherent contradiction in these two sentences.

If you do this, maybe everything will turn out fine. But there is a very real risk that they will not. The fact that you're dealing with your parents only heightens that risk. Do what you want, but you can't say you weren't warned.

Uncle Rico wrote:

If the amount they will need to pay you is less than their rent, then they can rent a house on their own.

That was one of my first thoughts.

But if they are looking to live in a small single family home there are not as many of those for rent usually as there are for sale.

And owners of those homes may be looking for a high rent to cover the high mortgage for the high price and higher interest rates they may have paid for the house during the housing bubble.

You may be able get a good price on a sale and get a low mortgage with today's low mortgage rates.

The path of going through their son could get them a better rental rate and better house than the open market.

For the OP's plan, the numbers and the value work pretty well.

It's just the mixing family and business aspect that could cause hesitation on pulling the trigger.

It's hard to give good advice without you giving more specifics (your income and assets, their income and assets, the type of house they want to live in, the type of house you can afford, what the housing market is like should you need to sell). That said, this board being what it is, I completely understand why someone wouldn't want to get too specific.

All that to say, your story as given so far doesn't make sense to me. It's great they've matured, but why couldn't they save up for a house while living in an apartment for 8 years? If you're fifty years old and can't make the sacrifices necessary to save for a home, why are you so sure they'll be able to make the payments every month? (And if the payments are gonna be reasonable, I reiterate- what have they been doing for the past 8 years?) Is housing that expensive in your area, is their income that low (which as possible tenants is a huge red flag), or are they simply poor managers? Again, not a critique of your parents, lots of people aren't great with money, including tons of my friends and family, but I'm not thinking of using my credit to secure those f&f a massive loan.

Again, maybe you're just not being specific, but it sounds like you're being talked into this by your parents. You're talking a lot about the upsides and ignoring some huge negative sides. Potential to ruin your relationship with parents (who it sounds like you're close with, which is great) and also fvck your credit up big time being the biggest two, in addition to the fact that being a landlord can quickly become very time consuming (They're aging, when stuff starts breaking are they gonna fix it? Do you have enough money to pay a handyman for everything?)

Why not just give your parents a 20% downpayment for a home they can afford to make the monthly payments on? Seems like a nice compromise. They'd get a house, you wouldn't be left holding the bag should something go wrong.

Seeking out legal advice seems like a good thing, but only if you're willing to pull the trigger on your parents should they get behind on payments.

I think it's great you're willing and able to help out your parents, but do it in a way that doesn't leave you exposed to massive liabilities should things go poorly. Just give them the money for a DP, and if you don't have the money to do that, you shouldn't be going into real estate anyways.