Real Estate

The Difference Between COVID-19 Crisis and the Great Recession

Have you been on the fence about buying your home now or waiting to see if home prices come down?  Perhaps, you have heard from people that the real estate market is going to crash because of the COVID-19 economic shut down.  So, I would like to give you four reasons why it is different and why the impact in housing will not be as drastic as it was in the Great Recession.

  • We need to know the problem originated in the housing sector during the Great Recession.  There were some bad loans out there and financial institutions had to be bailed out. COVID-19 did not originate in the housing sector but in public health.  
  • Yes, the COVID-19 shutdown created a high unemployment rate at a very fast speed.  However, according to the Becker Friedman Institute, University of Chicago, 68% of workers who are eligible to receiving unemployment qualify for more than what they would normally earn and 20% will receive two times more their regular earnings.  This option was not available during the Great Recession.
  • Under the CARES Act homeowners are able to apply for forbearance on their mortgage loan up to a year as well as apply for other options such as loan modifications before their house will be foreclosed on.  During the Great Recession, by the time many homeowners had any of these options, their homes were already foreclosed.   And since many of the servicers were not communicating between departments, when one department was approving a loan modification, the other one was concurrently foreclosing on the property.   Also, most homeowners did not have equity in their home during the Great Recession; however, according to Black Knight Analytics the majority of people in forbearance right now have at least 20% equity.
  • There is a low inventory of homes for sale, which are not enough for the number of buyers looking to take advantage of the low interest rates.  Sales slowed down a bit during the stay-at-home order mandate. However, they are starting to pick up with some hot spots selling homes within days.  Interest rates will more likely be low until the end of the year according to the Federal Reserve.

As always, buying or selling depends on your individual needs and circumstances.  Nonetheless, some additional information can be useful.  If you have any questions on buying or selling your home, feel free to contact me. 

Real Estate

How Can Parents Help Their Adult Children Purchase Their First Home?

Have you wondered how you can help your adult child purchase his or her first home?  Well, here are 4 ways you can help them:

  1. Gift them a portion of their down payment
  2. Co-sign as a non-occupant
  3. Give them a gift of equity
  4. Guide them on establishing good credit

Gift a portion of their down payment – You can gift your children a portion or all of their down payment.  However, please note, gift tax may be applicable after certain amount (consult your CPA for more information).  Also, consult with your loan officer on the guidelines for gift funds to learn up to how much money you are able to gift.  It is also a good idea to have “seasoned” funds.  This means the money has been in the bank account for a couple of months already when the loan officer runs the credit report.

Co-sign as a non-occupant – If you trust your children enough to have your name on the loan, 🙂 this is another option.  The lender will use your credit score and debt to income ratio along with your child’s for the loan qualification. When you co-sign as a non-occupant, you are signing off on the mortgage loan and taking responsibility if your child defaults.

Give them a gift of equity – Equity is the difference between the value of your home and how much you owe on your mortgage loan.  If you were to choose to sell your home to your child for less than what it is worth, the difference would serve as part of or their down payment (depending on the amount).  This would mainly benefit your child, but it could save you some time and money if you were already thinking of putting your home on the market and you will be helping your child.

Guide them on establishing good credit – From a young age, teach them the importance of staying out of debt but at the same time, help them establish their credit.  Guide them into opening a bank account and applying for a secured credit card.  Teach them to stay organized and pay their bills and student loans on time.  You can also let your child become an authorized user on your credit card so your good credit can benefit him or her.  Depending on how responsible your child is, he or she might want to apply for a student credit card; but remind them to always pay on time, pay off the balance, and keep the utilization ratio under 30%.  Their cell phone and utility bills may also help in establishing credit.

These are just a few ways you can help your children purchase their first home.  Their credit, income, and debt will still be taken into account when a lender is considering giving them a loan, but your support could make a difference in getting them approved for a better type of loan or interest rate.

As always, I am here to answer any of your real estate questions. Click below to schedule your online session to chat about how you can help your adult children purchase their first home.