You never thought it would reach this point, but it’s finally time to sit down your parents and have that awkward conversation. No, not the one about the money you might inherit some day, but rather the “help with down payment conversation” to assist you in purchasing your first house.
And if you’re already in your early 30s — the age when most first-time homebuyers take the plunge — then initiating that conversation becomes even more urgent. If you wait until you’re gray in the temples, that may be too late. Have you looked at interest rates lately? They’re still historically low (see the rate tables on our new mortgage page). This is your window of opportunity. Your time is now!
You’re not asking for a handout, just a hand-up from the bank of mom and dad to help you finance your first home with an affordable FHA loan or similar-type easy-entry financing uniquely suited to first-time homebuyers.
We’ll even help you plead your case. Here are solid reasons why your parents should help you fund your down payment, and the conversation worth having:
- ‘I’m finally working, it just took me a little longer to find a job than I thought.’
- ‘I might have had a little more money stashed away, but paychecks aren’t what they used to be.’
- ‘I worked really hard in school to get good grades and a great job, but I had no idea I’d be more than $30,000 in debt after graduating.’
- ‘Mom, dad, I wouldn’t ask if your home equity and your stock portfolio hadn’t rebounded so wonderfully.’
- ‘Mom, dad, by asking for help with down payment, I’ll actually be saving you money.’
- ‘How much money are we talking about, son?’ (You’ve got their ear now.)
- Final thoughts
‘I’m finally working, it just took me a little longer to find a job than I thought.’
Your parents should be rejoicing that you have finally found steady work. Not all millennials are so fortunate. According to the Georgetown University Center on Education and the Workforce, millennials account for 40 percent (4.6 million) of unemployed workers. Indeed, it’s quite impressive that you even have a job, given that your peers, ages 25-32, confronted a higher unemployment rate that any previous generation stepping into the workforce.
By playing up the work angle, you’re showing your parents that your expensive education wasn’t all invested on making you a better video game player.
‘I might have had a little more money stashed away, but paychecks aren’t what they used to be.’
You’re not pulling out your violin or asking for some kind of pity party. You’re just stating the facts. Paychecks are shrinking for younger Americans. After adjusting for inflation from 2007 to 2012, paychecks for college graduates, ages 18-34, dropped $3,300 in average annual earnings, according to Census Bureau data.
Raising this factoid in front of your parents should also impress them with your ability to retain and cite statistical data.
‘I worked really hard in school to get good grades and a great job, but I had no idea I’d be more than $30,000 in debt after graduating.’
Who knew that flipping your tassel and accepting your diploma would set you back $33,000, which is the average debt facing 2014 graduates. Yours was a little less when you graduated back in the day, but with the interest you were charged for deferring payment until you got a job makes your loan balance still about as high as a freshly minted graduate’s.
Here’s the clincher. Even after adjusting for inflation, your college debt is double what students had to pay back 20 years ago.
‘Mom, dad, I wouldn’t ask if your home equity and your stock portfolio hadn’t rebounded so wonderfully.’
Retirement savings in 401(k) accounts are up from $76,500 five years ago to $147,700 today, according to data compiled by Fidelity Investments. In 2012, accounts rose 13 percent. In 2013, the Standard & Poor’s 500 Index rose 30 percent, and so far this year, the S&P is up about 9 percent.
Housing equity has experienced a similar robust ride. For example, California’s median home price soared more than 64 percent from $249,960 in January 2009 to $410,990 in January 2014.
‘Mom, dad, by asking for help with down payment, I’ll actually be saving you money.’
It costs about $245,000 for a middle-income couple to rear a child to the age of 18, according to the U.S. Department of Agriculture. So, were you to divide $245,000 by 18, that’s $13,611 a year.
If you’re still living at home, you’re costing your parents $13,611 a year. Your parents are only too aware that you take long showers, leave lights on, run the air-conditioning all hours, do loads of laundry with the washer only have full, and raid the refrigerator as if you’re still a teenager.
All these uses cost money. Tell your parents that with you out of the house, their utility and food bills will shrink dramatically, more than offsetting what you require for a down payment.
‘How much money are we talking about, son?’ (You’ve got their ear now.)
Here’s where you share what you know about Federal Housing Administration (FHA) loans.
According to the National Association of Realtors (NAR), the national median sales price for existing single-family homes in July 2014 was $223,900. If you were applying for a conventional loan, you would need $44,780 (the typical 20 percent down payment).
But with an FHA-insured loan, which is geared for first-time buyers, you’ll need just $7,836 to meet the 3.5 percent down payment requirement.
After subtracting your down payment, you’ll need to finance $216,063. At today’s (Sept. 23) rate of 3.96 percent, your payments, before taxes and insurances, would be about $1,026 a month for a 30-year term. For more mortgage help, visit our new mortgage page.
As for your parents’ concerns about any tax implications, they shouldn’t have any. Each parent can gift up to $14,000 each tax free each year. That’s $28,000, if your parents give jointly.
No one likes being in the position to ask for money. But seeking help with the down payment is a smart economic move for both you and your parents. They already have a big investment in you and you’ve shown by earning a college degree, getting a job and setting your sights on becoming a responsible homeowner, you’re squarely focused on the future.
And who knows? Once you own the roof over your head, what’s stopping you from starting your own family? Your parents just might be grandparents sooner rather than later.
Peter is a staff writer at MyBankTracker.com who covers banking, personal finance, investing and homeownership.