Buying property in New York City is expensive. And with the cost of real estate continuing to increase, would-be buyers are often turning to their parents for help getting started in the process. When parents have the ability to help their children with their first apartment purchase, it can change the trajectory of the child’s wealth creation and stabilize their quality of life. Buying an apartment, whether a condo or co-op, also makes good business sense, given the tax deductions, build-up in equity, and overall property value appreciation.
If you’re looking to buy an apartment with financial assistance from your parents, it can easily be done. However, there are important nuances to consider. Besides having a clear understanding of the deal with your parents, you’ll need to decide whether they’ll be gifting funds to assist you with the purchase or co-purchasing the property with you. Your parents may even choose to purchase the property outright for you.
Parents Gifting Funds to Buy an Apartment
Individuals may have enough income to cover the monthly payments on apartment, but not enough savings to cover the down payment. This is where a cash infusion from a parent can be incredibly helpful.
>> One Rule to Remember If You’re Buying a Home With Gift Money
A cash infusion from a parent will come in the form of a gift. The gift may be part of the down payment, the whole thing, or even significantly more. If the gift will still require the addition of financing to complete the purchase, it’s essential to connect with a lender and get pre-approved on the basis that the buyer will be receiving a gift to purchase the property.
“Gift funds from parents are perfectly acceptable to most lenders as part of a down payment,” says Chesky Fuchs, branch manager at FM Home Loans, a Tri-State mortgage lender. “Obviously, each loan has its own story and structure, but lenders are concerned as to the source of additional funds that the customers are getting before they buy a property. If it’s a gift with no expectation of repayment, the donors (aka the parents or related family) have to sign a gift affidavit attesting to that fact. There are additional criteria, so you must mention this to your loan officer as soon as possible.”
If you’ll be the recipient of such a gift, it’s essential to let your real estate broker know, as some co-op buildings have tight restrictions on buyers who need a cash infusion to make a purchase happen. However, the majority of buildings are perfectly accepting of this reality, as long as you can provide proof of where the funds came from and a commitment from your lender.
Parents Co-Purchasing the Apartment
The alternative to receiving a gift from parents is to co-purchase the property with a parent. This means that both the parents and the child will be on the mortgage and deed. Parents may want to be legal co-owners of property so that their child can get a mortgage for which they may not otherwise qualify. Co-purchasing also extends a level of control the parents may desire, given the large financial commitment involved in buying NYC real estate.
As with the gifting of funds, you’ll want to make sure you speak with your lender to discuss the situation and see how much financing you’ll be able to receive. You’ll also want to work with your parents to understand who is going to be responsible for the monthly payments. Furthermore, it’s important ensure your broker sticks to buildings that allow for co-purchases.
Parents Purchasing the Apartment Outright
In some instances, parents may choose to completely purchase a property for their child to live in. Parents may have the expectation that the child pays them rent, or simply that they treat the property with love and care. Either way, if you find yourself in this situation, consider yourself fortunate.
Parents may choose this arrangement if the child is attending college in NYC, and the parents want to invest in real estate while saving the four years of rent they’d have to cover. Some parents may want to help their kids right out of the gate when they land their first job in NYC.
Condos will definitely allow parents to purchase an apartment for their child, but co-ops are a building-by-building situation. Either way, work with your broker to ensure you find an apartment that makes sense for your needs.
If your parents want to help you purchase your first apartment, make sure to get them involved early in the situation and understand the extent of the assistance they’re willing to offer. Make sure you also communicate everything with your lender and broker to ensure that you find a property that suits your wish list and is compatible with a parent-assisted purchase. Remember that there’s absolutely no shame in receiving help from your parents in buying your first NYC apartment.
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