I’m going to need my parents’ help to buy an apartment in NYC. How does a co-purchase work?
Nice question from Trulia Voices.
The hope that the questioner had was that the parents could get a mortgage, and then just give him the tax deductions — but unfortunately, in New York apartments, it’s a little more complicated than that.
There are lots of co-purchase situations in NYC, but if you’re buying into an apartment building, it depends on what building you’re buying into, so you need to be working with a buyer’s agent. Some co-op/condo boards are flat out not going to allow a co-purchase. Some (most condos) don’t care if you put the Easter Bunny on the mortgage. But there are many co-ops that fall in between, and depending on the area you’re looking in, you don’t want to rule those out.
There are typically two structures. 1) Child has job, so parents gift down payment, and child gets mortgage in his/her name and makes future payments. I did a deal like this in the Financial District, and the child got a “stated” (no-income requirement mortgage) at about 8%. The problem here is, what if the child still can’t pass the board on income alone?
If the kid is a lawyer and just needs a little down payment help, great — but in the case of this deal, the child could not have passed the board on income alone. So we had to structure a housing allowance from a family trust so that the board felt comfortable with the child’s income. Complicated, but it worked.
2) Parents co-purchase with child. This is generally what you have to do when the child does not have a job — let’s say he/she is in medical school. This means that there’s one mortgage that is taken out on the strength of the family (i.e. parental) income. The mortgage will then be at the best available interest rate. This is a more typical situation, and one that many buildings will feel comfortable with.
Its disadvantages are that you have to do three board packages, which means you’ll need references and financial qualification info for your parents even if they’ll never set foot in the apartment. They’ll also have to fly in from wherever to go through the board interview, and they’ll be forever fiscally responsible for that apartment — which some parents are just not into.