Board Approval / Loan Approval

The board is more of a concern than the lender.

Many boards aren't crazy about parents buying for kid. They want to know the actual tenant will be able to afford the monthlies going forward--it's not simply a matter of having money to put down for the initial purchase.

The board will also require that you (not your parents) have sufficient liquid assets after the purchase; if you can demonstrate that you'll have a better chance. Some boards will consider a couple of years' maintenance put in escrow when parents are heavily involved in a purchase for a kid--this gives them added assurance the kid won't default.

Oh, and no offense intended in the liberal use of the term 'kid'... I'm speaking strictly from a board point of view here.

andrew, you're ponying up 70% down?!

i'm in somewhat of a similar situation, and so far my impression is that the bank is easier to deal with than the board. An important metric you've skipped is your debt to income ratio, which is all of your monthly payments (mortgage+maintenance+car+in my case student loans) divided by your monthly gross income. Anything over 30% and you're in for an uphill battle with both the bank and the board.

i've ran into problems with the "some excess liquid assets." I had planned on getting 30% of my down payment from my parents, but recently my broker told me that alot of board require 18-24 months of post-closing liquidity (meaning mortgage+maintenance times 18-24). The new plan now is for my parents to give me pretty much 100% of the down.

Every building is different -- some boards will be fine with parents purchasing for their children, some won't. My board at 731 Greenwich (where I'm selling a small one-bedroom) has let me know they're fine with parents but don't want investors.

Because boards can be fussy (for one co-op in FiDi I created a housing allowance off a child's trust for a buyer who was a recent college graduate) you'll just work with your broker on structuring your finances -- that's what they're there for.

Transferring the money now won't make that much of a difference, because the board will look back far enough to realize that it's a gift, and you'll have to do a "gift letter" from your parents whether it's now or later.

If you're buying next year, though, have your parents give you the maximum they can without triggering a tax event (which I think is $24K) this year, just to reduce their tax hit next year.

ali r.
{downtown broker}

Depending on the building requirements -- please note the application. if a building just requires a bank balance -- transfer the funds -- if they ask for several months of bank statements -- you are not going to make an impact by the transfer

Thanks for the input. The reason I am planning on putting 70% cash down is b/c I only have enough monthly income to support that level of mortgage payments + maintenance etc. (meeting the 30% "dti" test). I have been assuming that is the maximum amount of a loan I can qualify for. Fortunetly my parents are willing to help me out on the downpayment. Sounds like I will need the "gift letter" for both the bank and the board, but does not seem to matter if the funds are in my account or theirs.

I was actually more concerned about the lender b/c I was figuring you have to open your whole life up to the coops in the first place so no point of hiding the fact that my parents will be contributing.

If I am paying all monthly expenses on my own and putting $$ into escrow, does that still actually qualify for "parents buying for children"?

The exact way you want to put it to listing brokers is "is the board okay with my parents gifting me the down payment?"

ali r.
[downtown broker}

ali_r, i was under the impression that parents can give up to $1M in their lifetimes tax free?

Some boards will actually want your parents to co-sign for it since they are giving you so much. if they would be willing to do this, you should have no problem. If they won't, you should still be okay for a lot of buildings if you can put the 18-24 months into escrow.

I'm on the board in my building, and even for all cash purchases, if the buyer is young/not much income, we might require a year's maintenance in escrow. Our maint is pretty low, though.

Even with a 'gift letter' some boards will require proof of the gift (i.e., a brokerage statement or bank statement) from the parents.

24 months escrow is reasonable; some things to consider 1) is it in an interest-bearing account? 2) is the escrow agreement open-ended---I wounldn't want to be in a position where the co-op bd. has the option to review the buyer's financials on a year-to-year basis in perpetuity until they feel satisfied. I feel the escrow should be returned after a one, perhaps, two year period.

I believe there is a life-time cap on tax-free gifts, but they are limited on a yearly basis per individual gift.

You can formulate it as a loan with your parents and they can gift you a reduction over the years until it is gone...

liulide, I am not a tax attorney but my impression is that there's a tax imposed on the giver, not the recipient, for gifts that go over the yearly exclusion -- which the Internet says was raised this year to $13,000. So Mom can give a kid $13K and Dad can give a kid $13K in 2009 for a total of $26K -- more than that and I believe it's a taxable event to the parents.

But hey, I specialize in showing real estate, so consult your accountant.

ali r.
{downtown broker}

I believe that Ali is correct about the gifts, although I thought the limit was $12,000 per parent/family-member but that may have changed.

sjbh - the money is escrow would be put into an intrest-bearing account, but it is up to the board when you would get it back. That is the safety net and until a person has the liquid to show the board, the escrow remains.

Our coop wouldn't have an issue if you can make the monthlies and put some in escrow if requested. I am assuming you want the apartment in your name only. If it's in your parent's name as well then they will have to show all their assets and liabilities as well and attend the interview.

ali r, i think there's also $1 million lifetime tax exemption in play, the rule being each parent cannot give more than 1 million in their lifetimes to their children. so if a parent gives, for example, $212k this year, he doesn't have to pay any taxes, just file a form with IRS letting them know he only has $800k left in his exemption. This is the same law as the estate tax exemption, meaning when the parent dies, his tax-free portion of the inheritance to his child is also lowered to $800k.

The deal with the $12k annual gift exemption is that a parent/family member/anyone can give up to $12k a year and that amount does not reduce the $1M lifetime cap.

i'm not a tax attorney either so don't take this at my word.

http://www.smartmoney.com/personal-finance/estate-planning/start-giving-it-away-early-8005/

The above link is a brief article as to gift taxes conjuction with estate planning:

great article, thanks!

ali r.

my building is also ok with parents purchasing for children. my apt is for sale... 225 east 36th street. lots of people in their 20's- 30's as it is one of the few (so i'm told) that is totally ok with it