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More parents financing their children's mortgages

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SALT LAKE CITY -- An increasing number of young adults are turning to their parents for home loans, which may be a winning situation for both parties.

Mortgage rates are at record lows. At the end of last week, Freddie Mac said the average on a 30-year fixed rate loan was 4.01 percent. But home lending standards are extremely tight, meaning many young home buyers can't qualify.

Others can qualify but find they can get a better deal by borrowing from a parent. The advantages include:

  • No closing costs
  • No appraisal fees
  • Lower interest rates on the loan

Parents who lend the money may get higher interest rates from it than they would from investing the money elsewhere. USA Today reports the average rate on a one-year certificate of deposit is 0.4%.

National Family Mortgage is a company that specializes in setting up and servicing loans between family members. Company executive Timothy Burke told USA Today a family mortgage is an opportunity to create a win-win situation for parents who don't want to take risks in the stock market right now.

First-time home buyers
  • 27% - gift
  • 9% - loa n
Source: National Association of Realtors

Parents also increasingly are coming up with down payments for their children's homes.

The National Association of Realtors reports 27 percent of first-time home buyers said they made their down payment thanks to a gift. Nine percent say they received a loan to obtain the down payment.

Burke is somewhat skeptical about the entire 27 percent receiving money completely gratis. He suspects more people are getting money with strings attached.

Dan Driscoll of Maryland lent money to his son for a mortgage. He told USA Today a family mortgage can work if the son or daughter is "honest, trustworthy and responsible."


Written with contributions from Andrew Adams.

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