Easing Boomerang Children Out Of The House
August 1st, 2008
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With a jobs shortage and huge number of adult children living with their parents, there ought to be a way to get the youngsters out of the house. And now, thanks to the new FHA reform bill, there is.
As a parent you can always give a gift to a child to help them buy a home. But a “gift” is something that you don’t get back and doesn’t pay interest, not an option for a lot of families that are not among the rich and famous.
Under the new FHA package, however, there is a delightful option: You can give the children a loan and it will count as “cash” for FHA downpayment purposes.
This is likely to be a better idea for most parents than an outright gift. You can structure the loan as you like, maybe not requiring payments or interest for awhile, or maybe not requiring repayment after so many years. And you can forgive the debt in your estate, if you want.
Given that so many couples wind up in divorce court, a loan rather than a gift may well be practical and prudent alternative to an outright gift.
Loans, of course, should be in writing, with all terms plainly spelled out. An attorney or legal clinic can help with the paperwork and specific advice.
SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWN PAYMENT ASSISTANCE.
Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended to read as follows:
“(9) CASH INVESTMENT REQUIREMENT. –
“(A) IN GENERAL.—A mortgage insured under this section shall be executed by a mortgagor who shall have paid, in cash or its equivalent, on account of the property
an amount equal to not less than 3.5 percent of the appraised value of the property or such larger amount as the Secretary may determine.
“(B) FAMILY MEMBERS.—For purposes of this paragraph, the Secretary shall consider as cash or its equivalent any amounts borrowed from a family member (as such term is defined in section 201), subject only to the requirements that, in any case in which the repayment of such borrowed amounts is secured by a lien against the property, that –
“(i) such lien shall be subordinate to the mortgage; and
“(ii) the sum of the principal obligation of the mortgage and the obligation secured by such lien may not exceed 100 percent of the appraised value of the property plus any initial service charges, appraisal,inspection, and other fees in connection with the mortgage.
“(C) PROHIBITED SOURCES. — In no case shall the funds required by subparagraph (A) consist, in whole or in part, of funds provided by any of the following parties before,
during, or after closing of the property sale:
“(i) The seller or any other person or entity that financially benefits from the transaction.
“(ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).
This subparagraph shall apply only to mortgages for which the mortgagee has issued credit approval for the borrower on or after October 1, 2008.”
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