How can young buyers possibly enter the real estate market today? Some buyers choose to co-invest with partners, friends, siblings, or parents. But buying homes with partners is problematic, particularly when the relationship dissolves, like my friend experienced. Neither party could afford to buy the other out, leaving no option but to sell. As parents, my husband and I have tried to help our kids solve problems and make adult decisions. But the path to home ownership seemed unsurmountable without assistance. Our sons calculated mortgage insurance rates, credit scores, debt-to income ratios, and compared first time buyer programs and mortgage options. From vacant lots and modular or container homes, to condos and “fixers”, they explored every conceivable option! We used our real estate experiences and capital to help them make investments that would likely increase in value. And spare them the pain from making choices that might hurt them later.
Down payment Assistance?
My friends often replied, “Wow, you do so much for your kids,” when I mentioned helping my sons navigate buying their first homes. This is a major financial endeavor that affects buyers for years to come. For many, the desire to own a home is an indicator of success and security. When two-year rent for a 2-bedroom apartment on a busy California street reaches $72,000, the desire to own is real. Sadly, owning a home is an unattainable dream today for young and old alike. My husband and I were fortunate to receive help with our college expenses, while others we know still struggle in their sixties to pay off high-interest college loans. Early assistance enabled us to buy our first home in our 20s, a condominium, without crushing depts. But what it costs to enter the market is vastly different than what the same, now older home, costs today.
One thing remains constant: home price increases all over North America are disproportionate to salary increases and cost of living adjustments. In the early 1990s, we bought a condo for $165,000. Today, the same condominium is worth $665,000. The salaries have risen, but so have homeowner association fees, as buildings age and require more upkeep. Some are $800 or more a month! In 2016, an apartment balcony collapsed in Berkeley, CA, killing six students. (One died later). Now all multi-unit dwellings in California require inspections of balconies, stairs, and landings every nine years for dry rot inspection. Lenders factor in these extra HOA fees and repairs into the life of the loan. Down payments today require larger financial commitments, to avoid exorbitant mortgage fees. High interest rates further hinder first-timers from buying real estate. Lenders are becoming more cautious to protect their investments, particularly in the riskier condominium market.
Gift Contributions
A friend recently asked me, “how can we help our son purchase a home?” There are many ways to offer support, such as practical, financial or emotional support. Financial support can be more complex, provided you have the luxury to help in this way. With gift contributions, the buyer/couple can be the sole loan holder, and the donor provides a portion of the loan or downpayment. Gifts are tax-free free up to a certain limit each year. This number can change annually, but this year, 2026, it remained the same as the previous year. An individual can currently gift up to $19,000 per person without requiring a gift tax return. For one buyer and two parents (a married couple filing jointly), this equals $38.000. For two buyers and a married couple contribution, this equals $72,000.
Donors must file a gift tax return IRS Form 709 if they give more than $19,000. Don’t worry; this does not typically trigger an immediate tax payment. A gift tax does not apply, if your lifetime taxable donations do not exceed the lifetime gift tax exemption. Unless you are a billionaire, most people do not reach the lifetime gift limit! In 2026, the cap is $13.99 million per person, and $27.98 million per couple.
Loan Repayment?
With gifts, there is no expectation of recipients paying back the contribution or portion or return on the investment. Unlike with loans. In other words, there is no obligation, expressed or implied. Otherwise, a lawyer could argue it is not really a gift. Lenders interchange terms like a gift letter or contribution letter. For example, US Bank may refer to all contributions as gift letters, even if parents are on the title of ownership. How strict lenders are with this definition depends on the underwriter approving the loan. Some underwriters and lenders are more lenient towards having parents listed on the property title as co-owners. Others want the other co-buyers to be listed on the loan, in case the other buyer(s) defaults on their mortgage payment. Mainly, lenders do not want gift funds from donors who have an interest in the sale of the property, such as real estate agents, brokers, builders, or loan officers.
Going on Title Versus the Loan
Let’s say you are that generous person contributing to the downpayment. If you require re-payment or a return of your investment, you may choose to go on title with the buyer(s), while staying off the loan. That way, you are co-investing and have a legal means to recover assets. How you list owners on the title is a whole separate topic! Some co-buyers choose to formalize this arrangement in a contract. But being on title means that the owners cannot sell without you co-signing the sales contract, which guarantees you a portion of the equity. Other contributors choose to go on the loan with the co-buyers, which makes the co-investor more liable if the occupants cannot keep up with payments. A loan affects the buyers’ debt-to-income ratio, as the lender expects the buyer to make regular payments towards paying off the loan and these amounts are factored into the loan.
Lender Hurdles
Finding a savvy lender is key to navigating the financial maze. Banks are more cautious to issue loans now, given past practice of issuing mortgages to buyers with limited down payments. Lenders overqualified buyers, the demand increased, and prices went up. When prices later fell, and foreclosures increased, the banks started to fail. The amount owners owed was more than the equity they acquired. Now banks want to ensure that ongoing expenditures like car loans and mortgages do not exceed buyers’ ability to pay for them! The first step to the loan application process is pre-qualification letter. It is important to run a preliminary soft credit check, because running too many credit checks can impact a credit score and make it harder to qualify for a loan. It is best to shop around for the best lender rate, and to find a lender whose communication style best suits the buyers.
So, what do lenders look for:
- A good credit score (minimum of 620; higher is better
- Stable income (usually at least two years at one location)
- Debt-to-income ratio of 36-43%
- (Debts should be not more than about one third of the income. Take the total monthly debt and divide by gross monthly income) for adequate funds for a downpayment- 3-20% of purchase price.
A bigger down payment will result in a lower monthly mortgage. Lenders will also want to see financial documents like tax returns and pay stubs, and recurring expenses. These all affect loan pre-approval. Generally, the higher the interest rate, the less loan (and house) buyers get. Closing costs also need to be considered to finalize the sale. Certain lenders will offer to pay some of the closing costs. Counties vary with what sellers and buyers each pay, but factor 2-5% of home price. Buyers also need emergency reserves. There are always last-minute fees at the finish line!
Lender-Agent Communication
The lender should work closely with the realtor throughout the sales process. When the agent my son and his fiancée found through Zillow refused to include the lender early in real estate process, this was the first red flag. (She did not want to bring in the lender discussions until the purchase offer was accepted by the seller.) The second red flag was when this agent refused to list on the offer the loan amount that they qualified for. She just took their offer price and subtracted their intended 20% downpayment amount. And declared that as the pre-qualifying amount. Even if it was technically NOT the amount they qualified for. Her rationale was that it could all be ironed out during the final price negotiations. That gap in funds had to come from somewhere. And it was most certainly not going to donated by the sellers!
Financial Risk vs Reward
I prefer that lenders communicate at key junctions along the way. The lender needs to know about the financial liability of their investments, especially in riskier markets. Our son’s initial realtor lead did not want to contact the lender until she safely had an offer in hand. And after the sales contract was in escrow with the title company. (Escrow officers are the third party that holds your good faith buying deposit and manages the funds exchanged between the buyer and the sellers.) Why would he get that far only to have to back out when the full risk was known and the lender refused to finance the purchase? There are reasons lenders pore over homeowner association documents, financial reports, expenses and projected repairs like costly balcony or roof repairs. Major weather events are becoming more common, which puts structures more at risk of damage.
The realtor steered our son and his fiancée towards complexes that carried huge financial risks. This was another red flag. Six units had come up for sale in a year, in a small development of 28 units: I wanted to know why. Call me paranoid, but I did not want my son to make a financially risky purchase. It turns out the units were under-insured when forced to go to an insurer of last resort. Back-to-back storm years had caused costly damage. The full cost of the repairs was not all covered by insurance and the owners were hit with special assessments of $2000 a year, on top of increased homeowner fees of at least $100 a month in the last two years- and were due to rise to $625 the next year. “They are righting the ship; it will be a great investment!” the agent promised.
Buyer Beware!
Another concern was that on purchase contract, this agent used the married name for the co-buyer when she was not married yet, left the condo unit number off, listed the wrong city, and included the wrong buyer terms. And the wrong loan amount. Every place to make an error on the purchase contract, she did. “We can fix it” later, she kept promising. When my son and his wife-to-be raised doubts about the financial health of the homeowner’s association she finally admitted, “They had problems in the past, but they are righting the ship. And it is a large complex… It will be great investment!” Twenty-eight units are hardly sizable enough to carry the load of that kind of substantial debt.
When the buyers asked their agent why the sellers were putting their home in the market, she told them the sellers were from North Korea! Not South Korea. Highly unlikely! Yes, wrong again. When she negotiated only $5000 off the greatly inflated sales price, it was hardly a huge win in a slowing market. (It was still $40,000 higher than their neighbor and failed to account for the financial liability of rising dues and special annual assessments). It is likely the lender would never have even approved this loan, if they had not decided to ditch the condo and the realtor. Because this was a virtual real estate firm, my son had no office or broker to easily appeal to for help. It was like being trapped in pyramid maze to find your way out. The realtor and broker and owner kept passing the buck to their partners.
Breaking Up is Hard to Do
After several weeks of this, my son and his fiancée informed their agent of their desire to discontinue her services. They had signed an “exclusive” three-month contract- but it was not a legally binding contract. After making them sign a hard copy of the buyer representation form at their first meeting, their agent failed to send them a copy, until they later insisted. Buyer representation forms are now required in California when viewing properties outside of open houses. But buyers are not locked in if they are dissatisfied with the performance of their agent. The contracts can be cancelled in writing. However, in their case, the agent kept insisting they were bound by a three-month commitment. She capitalized on their inexperience and tried to instill fear to save her commission. The wedding date was fast approaching, and they were keen to lock in property before the big day!
Our son and now daughter-in-law had originally enjoyed previewing properties with this older agent and enthusiastically explored properties with her. The concerns started mounting as soon as the first purchase offer was made. Until ultimately the situation became too risky to continue, even with extra reinforcements. Her brokers, as well as the owner of the agency, were equally difficult to reason with, despite repeated reassurances. Apparently, this agent had far less experience than she let on. We all must start somewhere. She started out sweet but became very salty until it was too toxic to continue. Buyers have every right to walk away.
More Disclosures
Buying a home and getting married at the same time is no easy feat for any couple even with stellar agents. Typically, I don’t involve myself in the affairs of my adult kids quite to this degree, however we had some skin in the game. Our son and his fiancée decided together to part ways with their agent. We did not want to cast doubt on their judgement in choosing her. But we were relieved when they reached this conclusion! The agent blamed me for being “mean-spirited and vindictive and making her life difficult.” She tried to create distance between my son and I, so that tiger mom would back off. However, had she not subjected my son to such a stressful experience and put him on high alert, he might have stepped into a bigger problem that lurked just around the corner. Pain has a purpose.
When my son asked me for recommendations for a new realtor, I gladly suggested a few. They met a Compass agent, Ashley, and were immediately impressed with her professionalism and proactive approach. She reassured them about not having financial liability with the previous agent. Particularly if they did not buy a home that this agent had shown them. My son then informed me of a promising new unit he had seen at an open house. Ashley jumped right on obtaining disclosures from the selling agent. With competitive Bay Area purchases, this is a typical request so buyers can make informed decisions and adjust offers accordingly. If the sellers know a developer plan to gut the forest behind the property for a huge hotel, they would need to mention it! Disclosures also describe the local environmental and safety issues and potential problems within the home. Sellers disclose repairs completed or needed.
Home Inspection Reports
I wanted to learn why the home inspection report was not originally included in the disclosure document. On the form, the seller initially denied water damage. And checked off “No.” Then he checked the “Yes” box and initialed it. For the mold issues box, he checked “No.” My son knew I had firsthand experience with mold remediations and sought my advice. Having had a fiasco once with mold damage, when tenants failed to report a leak in our rental property, I offered to investigate. I knocked on a neighbor’s door to casually uncover intel. Almost immediately I discovered the seller was lying. He and his wife were moving out because of a toxic mold report due to serious water damage and mold illness. The neighbor told me the owners complained they kept getting sick for months because of a leak upstairs that was not being repaired by the upstairs owners.
Once all parties accept the purchase offer, buyers can also order their own inspection report. But in the case of serious competition like we saw in the San Francisco Bay area the last five years, the buyer might forgo a home inspection and contingency and buy “As is.” Inspections give the buyers protection, should reports uncover a glaring problem once the deal is closed. In a previous condo my son reviewed disclosures for, the unit had been beautifully updated. Much like the unit with the hidden mold issue. Buried in the disclosures was a line about an insurance claim for damage to a shared living room wall. A bullet shot by the tenant next door recently penetrated the wall! Bullet proof walls were not features we thought to look for. That San Jose condo still sold within three weeks of listing for just shy of half a million dollars.
The Finish Line
So how did our son’s rocky first-time real estate adventure end? Ashley, agent number two, soon learned of a new listing coming to the market. It checked all the boxes of what they were looking for. She immediately texted our son and his wife-to-be. They went to preview it and loved it. And they prepared an offer, after checking recent comparable sales in the complex. Their agent strategized about what optimal amount to present. In the end, the owners went down by the same amount the buyers went up, meeting in the middle. The buyers hesitated to rush in and appear over-eager, as it was the first week on the market. But they also did not want others to submit an offer either. Funny how that happens so often in real estate! There can be no offers, and other interested parties appear out of the woodwork the minute an offer is made.
The anxious buyers waited two weeks before presenting their offer and requested a three-week closing period.This would give the lender time to gather the necessary documents to satisfy the loan underwriter. This is where regular communication between the lender, realtors and buyers is crucial. When hurdles arose, they scrambled to overcome them and submitted more documents. The property management representative for the condominium complex stated that urgent requests would not be honored. (The more she was contacted, the less she would respond.) Everyone was at her mercy, but the owner was able to submit the final pieces of information for the lender. There were last minute hiccups from the lender and the title company, but in the end, my son and his bride-to-be acquired their beautiful new home. Days later, they married. These days, it takes a village to enter the real estate market!
