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How Can We Tap the Bank of Mom and Dad to Buy a Home?


Asking Parents for Money

Asking Parents for Money Requires a Bit of Finesse

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Question: How Can We Tap the Bank of Mom and Dad to Buy a Home?
A reader asks: "My husband and I want to buy our first home in Sacramento, but homes in Land Park are more expensive than we thought. We need almost $20,000 and don't have it. My husband's parents might give us the money for a down payment, providing we can get up the nerve to ask them. Should we offer to pay it back? How can we tap the bank of mom and dad to buy our first home and still keep peace in the family?"
Answer: Family dynamics can make it tough when asking parents for money, because every family is different. It would be easy to say that every family that has the means would like to help their children buy a home, but that's not always the case.

When I bought my first home, I had the down payment and closing costs in hand. What I did not count on was a loan condition that required me to pay off my car loan before I could get a mortgage. I called my mom for assistance. She said, "Why should I help you? Nobody ever helped me." It wasn't the response I expected.

She had the money in the bank and it was a small amount. I promised to pay her back within a few months. She hesitated. I glanced at the boxes piled up in my living room and counted the few days remaining on the calender before I was supposed to vacate my rental and blurted out, "Because if you don't give it to me, I will be on your doorstep with my suitcases and a cat under each arm."

She hung up the phone and wired the money into my account.

But there are easier ways to ask your parents for money to buy a home, and I don't suggest resorting to blackmail.

Reasons Why Parents Give Children Money for a Down Payment

  • Some parents really want their children to own a home.

    If your parents own their own home, the odds are they want to see you in home ownership as well. They also want you to have children, so you can have as much fun as they have had.

  • Parents feel empowered when children ask for money.

    It bestows a certain amount of control, and it gives them personal satisfaction to know they can still make a difference in their adult children's lives.

  • Your parents might want to ensure that they will have grand children.

    Lots of parents feel it is easier to raise children in a home over an apartment; after all, home ownership is the American dream. They also want their grandkids to live in a family neighborhood.

  • Parents want to lead children to their next level of success and not wait for a will to be divided.

    Your parents may know how hard it was for them to buy their first home, and they want to make it easier on you. They want you to succeed in ways that aren't as difficult as they had it when they started out. This way, they get to see the rewards now instead of after they are gone.

  • Parents love you.

    Don't ever forget that ace in the hole. Your parents want you to be happy, successful and enjoy all the goodness that life has to offer you. If they can be part of that success, they are successful, too.

Asking Your Parents for Money to Buy a Home

First, you will want to review the five reasons above and commit them to memory. They will help you to establish your cause and case. Next, you need to decide whether you want to pay it back or accept the money as a gift. For most people, the gift option is most likely preferred.

  • Ask your parents for money in person.

    Don't do it over the phone. You should visit them. Your parents want to see you. They love your visits, don't they?

  • Be prequalified by a lender.

    Be ready to show your parents that you are not all talk but you are action. You have taken the steps to get a loan preapproval letter from a lender. If the lender has faith in your ability, your parents might have faith as well.

  • Show your parents you have hired an agent.

    With a buyer's agent on your side, a professional willing to assist in your home purchase and negotiate for you, your parents will see you are serious and prepared. Give your parents the agent's card.

  • Ask your parents to look at homes with you.

    This way, your parents can help you to make the right decision and will feel like they are involved in your life. They might even have great suggestions for you based on their own experiences.

  • Explain your financial needs.

    As a couple, you might earn a high income, but pressing demands might make it difficult to build up a down payment. If interest rates are favorable and prices attractive, now might be the time to buy.

Remember, if you choose to pay back the gift, you can always arrange to do so out of the proceeds of sale after you sell and are ready to buy your next home. Moreover, current tax laws allow each parent to gift up to $12,000 to each child without paying a gift tax. For more information, consult a tax accountant.

At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

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