Dear Real Estate Adviser,
I am buying a condominium, my first home purchase, but my parents will stay in it without me. Do I treat it as an investment property, or can I qualify as a first-time homebuyer?
It’s not exactly an either/or proposition.
First off, you didn’t mention the particulars of your planned arrangement. But whatever they are, it would probably be wise to consider charging your parents at least a nominal sum each month to offset the condo’s monthly maintenance fees, property taxes and any special assessments that might be levied for building improvements. Some advisers might even suggest you have a document drawn up that outlines any financial considerations and contingencies that may arise in the case of job loss, parents’ hospitalization, etc. Yes, that could be a little awkward, but it’s far less awkward than a raging family fight. (Just a warning: Mixing family with business can be perilous.)
There are some first-timer deals out there, but alas, those generous $8,000 first-time homeowner tax credits created a few years back have expired. Some states have their own tax-credit programs. The $5,000 D.C. first-time homebuyer federal tax credit, for instance, which is applicable for homes purchased through Dec. 31, 2011, is available to first-time homebuyers in the District of Columbia.
One possibility might be a low down payment program with a deceptively juvenile name: the Federal Housing Administration Kiddie Condo loan program. Kiddie Condo is geared more for parents who are buying homes for their children to dwell in while they are away at college. But it works the other way around, too, allowing a child to buy for parents. Terms are usually better if the blood relatives involved are co-borrowing using their combined assets or income as leverage. At least one of the borrowers must occupy the place as a primary residence in this program, which carries a down payment requirement of 3 percent.
There are a number of other FHA and government first-time buyer loan programs out there. In terms of tax structure, the kind of purchase you are pondering could count as an owner-occupied home instead of an investment property or second home, giving you, your parents or all of you less of a tax bite.
Finally, given the gravity of such a capital purchase, the hiring of an accountant or real estate or estate attorney is probably a wise move in this situation because he or she could explore all of the buying strategies and structures that best fit your family’s circumstances.
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