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Welcome to the Deerwood Realty to YouTube channel I'm John Schink founder managing broker of Deerwood Realty here in St Louis, Missouri you know got a fascinating topic today because um I work with buyers and sellers all the time and so this particular article isn't a surprise to me and um I'm bringing it to you because I think we can discuss some of the some of the things that might go wrong with with the setup but I find this to be um an odd an odd thing and we'll get to it in a minute but do you think it's okay for parents to help their children with down payments for new homes or homes of their own I I don't have any issues with it because as long as I've been in the business some some kids need help from their parents and some kids don't um and I oftentimes will ask ahead of time you know how how are we planning on on financing this because if they are planning on getting a gift from their parents then we need to get that letter uh over to the lender and the lender needs to be made aware so that they can you know file the correct paperwork for the loan so yeah I I'm not surprised by this but I kind of wanted to go through it because what I really think I'll put it to you up front is houses are super expensive right now you know in terms of affordability but you know they've always been kind of expensive you know it's not it's not anything new um some of the things like in St Louis you know if you're trying to buy a house in Clayton you're probably at $800,000 right like any house in Clayton and if your family's from CL and you have great jobs and you're you know you're starting in professions that have you know you don't have too much you know debt I mean maybe your parents help you out in Clayton which is crazy to me but not surprising um you know if if if I were that person I would say can we can we move you to someplace else where you could you know maybe buy a starter home relatively like maybe in the slums of $300,000 in St Louis do we really have to be in Clayton our first home but you know if somebody if a if a a buyer came to me tomorrow and that exact scenario played out I would say okay let's do it I don't have any issues with it so let's get into this article it's on CNBC and it says to buy a house in today's market more people turn to an alternative lender their parents now look I think that we've seen uh going forward here we've seen some things like there was the article about uh multi-generational housing that people you know wanted to live in the same house as their grandparents and their and their parents and I I said I think I think that's fine except for it's possible that this is a a reaction to the fact that homes are too expensive I feel the same way about this I think it's fine but I I I I think this has always been an issue and the article basically is just rehashing what has been the case for as long as I've been a real estate agent um I've been a real estate agent for quite some time it's it's getting to be pretty wild um but you know let me know what you think so let's get to it here we go let me switch over here it says um buyers turn the bank of mom and dad firsttime buyers Cobble together down payment sources from at least two places zillow's Chief Economist Skyler Olsen recently said on NBC's last call some of that is hard one savings she said and the other part is say a gift from family and friends in fact roughly 40% tap the bank of mom and dad up from only oneir pre pandemic uh Zillow found that's a pretty privileged Network now look to me you know oneir is like 30% 33% so 7% increase you know I just I just don't think that's a big deal honestly I mean it's the houses are more expensive now I don't I don't think this this is something new is what I what I was saying says to bridge the gap of growing Sheriff younger House Hunters are now considered nepo home buyers because they rely on family money to complete their purchase nearly 40% of recent home buyers under the age of 30 used either a cash gift from a family member or an inheritance to afford their down payment redin also found so they're at 30 uh well 40% of home buyers underage 30 and I and I mean I don't I don't think this is I don't think this should be a shock I mean I just don't I just don't see it as being surprising it says despite the Hallmark of the American dream close to 34s of wouldbe home buyers said affordability is their greatest obst obstacle a recent report by bankr found in fact housing is far less affordable today than any other time in recent history several studies show all right but I'm just saying that houses have always been relatively expensive for young people at least as long as I've been around I mean in 2008 um or I think it's 2007 I bought my house and um I mean it was $180,000 at the time and that was ridiculous that was just a a mansion for me um so I just find it to be hard to I just find it hard I just find it hard to not relate because I remember not having a ton of savings I mean I tried but you know I just I don't think it's that big of a deal and then at its peak in 2006 before the crash the payment to income ratio was 34% and late 2023 the payment to income Rao ratio is 40% so yeah not a surprise not a surprise I mean this is you're also seeing this like people are paying more in cash now is that a great idea I don't know I mean people are doing it it's a response to the financing though financing is too expensive then why should we Finance we'll just paying cash it says a down payment isn't everything and I wanted to I really wanted to go over this part of the article because I thought it was the most important I think there's a lot of misconceptions out there so it says often the down payment it's the down payment that seems particularly daunting however there are options noted lending trees senior Economist Jacob channel the though they are important buyers should REM remember that a down payment isn't everything and even if you don't have tens of thousands of dollars you can put towards one that doesn't mean you won't be able to buy a house now there's there's the down payment and then there's the you know the the payments you make every month and a lot of people do believe that you have to have 20% down and that's not true um and also what I would say is is one thing like there are different types of programs where the down payment isn't that bad and so we'll continue in this article it says while 20% down payment is still considered to be the standard the federal government States Banks and Credit Unions all offer programs with much lower down payment requires or even know at all keep in mind that many lenders and specific loan options like FHA mortgage don't necessarily require particularly large down payments Chanel said so look uh FHA you probably get in for I think it's 4.5% on a down payment don't come at me if I'm off by you know half a percent but that's one one rate to if you can get to it if you can get to a USDA loan those are 100% no down payment so you know is it worth like in St Louis is it worth going out to maybe look at High Ridge 30 minutes away to get a USDA

loan I mean you know that's where I think that you know working with a real estate agent a buyer's agent in the beginning could be really helpful in just deciding like okay well how how can we get the best home for you so what do you think is it wrong is it wrong to do the uh the parents paying the down payment I I wrote up some some ethical considerations I wanted to kind of put those forth um so there's one it's the fairness above uh fairness among siblings so if you have like three kids are you are you going to be able to do down payments for all three of them or just the one that needs help and will that engender you know issues with the other the other siblings another thing is long-term Financial Security for parents like so what if your parents aren't flushed with cash and they want to help but they they really financially shouldn't be helping they should just continue to be paying their own mortgage um and then another idea is this I think is a little outdated the dependency versus Independence while parental help can be a tremendous Boon it might also affect the child's sense of Independence and self- Reliance are the children learning to manage their finances responsibly or is this creating a pattern of dependency I don't think so again because I think houses are so expensive right now I don't see how you can get out of it and then there's an interesting one it says impact on the housing market on a broader scale significant par parental financial assistance can contribute to inflating home prices if a substantial number of buyers are entering the market with additional funds from parents it could drive prices up making houses less affordable for those without such support if you think that the housing market is in any way fair and not rigged uh you are uh Mis misguided people are always going to have more money than you people are always going to have a better financial situation than you uh and as far as worrying about that driving up the housing market how is that I mean I think that's less of an issue than an Investment company uh buying a single family home I mean and and just turning it into a rental I mean let's be honest that's that's something we don't really need to worry about too much

um the expectation of return I thought that was an interesting one is there an expectation of repayment or some form of return on this investment from the parents how are these terms communicated and agreed upon and what happens if the child cannot meet these expectations well um I it's a very very interesting question and then an impact on relationships Financial relation Financial transactions between family members can complicate relationships it's important to consider how this Arrangement might change the dynamic between parents and children clear communication and setting boundaries can be vital but look haven't these kids already I mean haven't you already worked with your parents and you know to buy a car or maybe there was something you wanted to save up for one time and your parents helped you I mean shouldn't that be kind of the direction that you would go in on this on on a house this shouldn't be new and then one of the interesting things about the expectation of return if if your parents are giving you a gift for a home I think you have to put in the gift letter that you have to supply to the lender it has to say this is a gift and it's not it's not a loan there's one real good reason for that your Deb income ratio if it's a loan it adds to the debt to income I would think I am not the perfect mortgage guy but I do know that I do know it has to be classified as a gift so that's what I've got for you today let me know if it's okay for your parents to help you with a house let me know if it's not okay I think it's fine but maybe I'm wrong so with that I'm going to head on out thank you for watching thank you for listening and I'll catch you on the next one